The stock market rally had a wild, diverse week. The indices were sharply lower midway through the week. But techies then boomed like Nvidia (NVDA) skyrocketed, chip shipping and artificial intelligence booming. Meanwhile, optimism about a debt-ceiling deal returned late in the week, overshadowing the growing likelihood of another rate hike by the Fed. Still, overall action for the week was mixed, with some stunningly anemic and some leading stocks struggling.
Dow Jones futures open Sunday night, along with S&P 500 futures and Nasdaq futures. Debt ceiling talks remain in the spotlight over the holiday weekend, while there are signs that a deal is taking shape.
Tesla (TSLA), Netflix (NFLX), Arista Networks (A NET), On Semiconductor (ON), NetEase (NTES), Mobile (MBLY), Smart sheet (FAT), Aehr test systems (AEHR) and McKesson (MCK) trading near buying points.
ANET stock, Netflix, On Semiconductor, NetEase and Mobileye all flashed buy signals on Friday. Tesla, Aehr Test Systems, Smartsheet, and MCK stock are all close to usable.
Investors could gradually add exposure as the market rally continues and broadens.
NVDA share is on IBD Leaderboard. MBLY stock and Smartsheet are on the IBD 50. Arista Networks was the IBD stock of the day on Friday. SMAR stocks were Thursday’s pick.
The video embedded in this article discusses the weekly market action and analyzes the shares of Arista Networks, Smartsheet, and Tesla.
Consultation on debt ceiling
Late Friday night, the Treasury Department said the money will not run out until at least June 5, giving negotiators a little more time to reach a deal on the debt ceiling. Previously, Treasury had said bankruptcy could come as early as June 1.
House Republicans and President Joe Biden appear to be reaching a debt limit deal that would impose some caps on discretionary spending. But there’s no deal yet, and any tentative deal would have to be approved by Congress.
Dow Jones Futures Today
Dow Jones futures open at 6 p.m. ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
US stock markets are closed Monday for Memorial Day. But other exchanges around the world will be open.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally
The stock market rally struggled midway through the week on debt ceiling concerns, but bounced back as Nvidia kickstarted an AI revolution and default fears eased. Still, the indices closed mixed.
The Dow Jones Industrial Average fell 1% during last week’s stock trading. The S&P 500 index rose 0.3%. The Nasdaq composite jumped 2.5%. The small-cap Russell 2000 closed flat.
The 10-year Treasury yield rose 13 basis points this week to 3.82%, the highest since early March. The probability of a rate hike by the Fed next month has risen to 70%.
US crude oil futures rose 1.4% last week to $72.67 a barrel. Copper prices fell 1.3% but recovered from 2023 lows, rising 2.6% on Friday.
Among growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) was up 3.4%, with SMAR stocks a small position. The VanEck Vectors Semiconductor ETF (SMH) exploded for a 10.55% gain with Nvidia holding a large stake and ON shares also in the ETF.
Reflecting more speculative story stocks, ARK Innovation ETF (ARKK) was up 1% last week and ARK Genomics ETF (ARKG) was up 3% last week. Tesla stock is the No. 1 position in Ark Invest’s ETFs.
SPDR S&P Metals & Mining ETF (XME) fell 2.9%% last week to a nine-month low. The Global X US Infrastructure Development ETF (PAVE) fell 0.8%. US Global Jets ETF (JETS) fell 1.25%. SPDR S&P Homebuilders ETF (XHB) slumped 2% after hitting a 52-week high in the previous week. The Energy Select SPDR ETF (XLE) fell 1.1%. The Health Care Select Sector SPDR Fund (XLV) fell 2.9%. MCK stock is part of XLV.
The Financial Select SPDR ETF (XLF) fell 1.5% and fell below the 50-day line. The SPDR S&P Regional Banking ETF (KRE) rose 2.75%, but encountered resistance at the 50-day mark
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Tesla shares rose 7.2% during the week to 193.17, including Friday’s 4.7% pop in large volume. According to MarketSmith’s analysis, the EV giant has firmly cleared its 50-day line and is now approaching a buy point of 207.89. That buy point is for an eight-week cup base or a three-month consolidation with a double bottom. Either way, TSLA stock has been consolidating just below the 200-day mark all along. However, the 200-day line is now right at the 200 level, below the buy point. So a breakout would be valid, with a decisive drop below the 200-day mark as the place to exit.
Other stocks near buying points
NFLX jumped 5.5% on Friday to 378.88, clearing an alternative buy point of 375.97 from a double bottom to hit a 52-week high.
ANET shares soared more than 18% this week to 170.35 amid the AI frenzy. Shares rose above the 50-day line and touched a trendline on Thursday, then rose 9.1% on Friday, with huge volume on both sessions. Arista stock is now slightly extended from 50 days/early entry trendline, but is also close to the official buy point of 171.54. Ideally, stocks would pause and forge a handle. ANET stock has bounced back since the plunge on May 2 after management failed to raise its outlook enough to satisfy investors.
ON shares recovered from their 50-day line on Thursday, then rose 5.6% on Friday to 86.62. Equities broke the downtrend of a steep handle and offered an early entry. The official buy point is 87.17, which Onsemi briefly surpassed on Friday. Note that On Semiconductor stock has a history of breaking out but later falling back to the old base. On Semiconductor is a supplier of Tesla chips.
AEHR shares fell 0.6% to 32.76 for the week, but found support at the 50-day mark and rose solidly late in the week. It’s a handle forged a little too low to be correct, but investors could use 33.40 as an early entry. That is probably safer than waiting for a traditional breakout above 40.79. On Semiconductor is Aehr Test Systems’ top customer.
MBLY shares broke out for a weekly gain of 10.6% to 45.14 and bounced back above the 50-day line. That offered an aggressive entry on Thursday and Friday mornings, but Mobileye’s stock has now expanded from there. It is close to a trendline entry near 46, with 47.04 yet another key level. The official buy point is 48.21. Ideally, MBLY stock would pause and forge a handle. Like ANET shares, Mobileye plummeted after earnings a few weeks ago.
SMAR stock pauses just below a buy point of 49.09 from a cup base, right next to another short consolidation. Smartsheet shares rose 2.2% this week to 47.86, with all gains and more coming Friday. The work scheduling software maker has bounced back after strong results earlier this month Monday. com (MNDY). Smartsheet earnings are expected on June 7.
MCK shares fell 2.4% last week to 387.95, near the top of a six-month consolidation. The drug distributor counterfeited a handle with a buy point of 401.53. McKesson stock is a defensive growth game. So if a high-risk growth rally hits hard, McKesson could be left behind.
NTES shares rose 2.4% this week to 89.51. On Thursday, shares recovered from their 200-day post-profit line. On Friday, NetEase shares reclaimed the 50-day line and offered early access. The Chinese mobile gaming giant has a buy point of 95.09 flat base.
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Analysis of the market rally
After Thursday’s stunningly diverse session, technology led again on Friday, but the push was broader. Optimism about a debt-ceiling deal after some mid-week jitters helped bolster investor sentiment.
Still, this is a divided stock market rally. The Nasdaq rises to its August highs, while the Nasdaq 100 is already there. The S&P 500, after slipping back into its sideways range midway through the week, is back at the 2023 high.
But the Dow Jones fell below the 50-day and 200-day lines over the past week, although it regained its 200-day line on Friday. The Russell 2000 fell back from its 200-day line, though it erased losses and closed above the 50-day mark.
The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) rose 1.6% this week. On Friday, QQEW was up 2.5%, peaked in 2023 and nearly peaked in August. That was a sign of broader participation, at least among growth stocks.
The Invesco S&P 500 Equal Weight ETF (RSP) fell 1.2% this week, falling below all of its moving averages again, even posting solid gains on Friday.
Within the AI and chip spaces, a host of stocks posted massive weekly gains, many racing past buy points.
But elsewhere market leadership is limited. A number of stocks and groups suffered significant midweek losses. Some have been fixed, but others may need to be reset.
A deal on a debt ceiling seems close, but is not there yet. Given that the market holds or recovers in the early June deadline, a de facto agreement to lift the debt limit is unlikely to lead to large additional gains.
Concerns about a rate hike by the Fed could again take center stage. On the upside, that coincided with relatively solid economic data, which reduced recession fears.
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What to do now
Last week presented some buying opportunities, although investors had to act quickly. Also, the mixed market signals may have led to some understandable caution.
This was a week where “fortune favors the bold”, but in recent months “discretion is the best part of courage” has been a prudent course.
Ideally, a market rally gives clear signals to be more or less aggressive. That has not been the case since early February.
Meanwhile, many AI and chip names raced through buy zones and haven’t looked back, but a number of other stocks have staged shakeouts or clear sell signals.
Assuming the market rally continues and more stocks send buy signals, you can increase your exposure. But do that gradually. If this uptrend continues, it won’t be long before it is fully exposed. If this split market is a Mr. Hyde twist, your losses will be minimized.
Do your fencing this weekend. The big swings over the past week could mean significant changes to your watchlists. Come back alert, flexible and ready to act on Tuesday.
Read The Big Picture every day to stay in sync with market direction and leading stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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