Dow Jones futures will open Sunday evening, along with S&P 500 futures and Nasdaq futures, heading into a huge earnings week for the stock market rally. Apple (AAPL), Tesla (TSLA), Advanced Micro Devices (AMD), Facebook (FB), Microsoft (MSFT) and Caterpillar (CAT) are key reports to watch.
The stock market rally continued to run to new highs last week with Apple stock and other tech giants leading the way and several IPOs making big moves. But the Nasdaq is extended heading into the heart of earnings season. If results or guidance disappoint, especially among leaders such as Tesla stock, the reaction could be negative.
Tesla, AMD, Apple, Facebook, Microsoft and Caterpillar stock are all technically interesting: Apple stock is in an official buy zone, while several others are actionable or near buy points. These are huge companies that can have a major impact on the indexes. Apple has a $2.36 trillion market cap. Microsoft stock is $1.71 trillion. Tesla is at $802 billion while FB stock is $782 billion. Even AMD stock and CAT are worth more than $100 billion.
These giants also could spur moves in rivals, customers and suppliers.
Apple’s results will echo through the iPhone ecosystem, including key chipmakers such as Qualcomm (QCOM). Tesla earnings and guidance and stock action could spur big moves in EV stocks such as Nio (NIO). AMD will be key for Nvidia (NVDA) and other data center chipmakers. Microsoft will inform investors about PC demand, cloud computing — think Amazon (AMZN) and Google — and enterprise software. Facebook earnings — and commentary about political headwinds — will be important for Twitter (TWTR), Google parent Alphabet (GOOGL), as well as other social sites and online ad plays. Caterpillar is a global economic bellwether and among several cyclical stocks near buy points in the mining and materials space.
Apple, Microsoft and Caterpillar stock are Dow Jones components.
Dow Jones Futures Today
Dow Jones futures will open for trading at 6 p.m. ET on Sunday. So will S&P 500 futures and Nasdaq 100 futures.
Coronavirus cases worldwide reached 98.95 million. Covid-19 deaths topped 2.12 million.
Coronavirus cases in the U.S. have hit 25.39 million, with deaths above 424,000.
New coronavirus cases have fallen sharply over the last several days, notably in California, but are still very high. Covid hospitalizations appear to have peaked, with deaths also showing some signs of topping.
Coronavirus vaccinations are picking up, as federal, state and local efforts improve from a rocky start. The run of three-day holiday weekends — three in the prior four weeks — also slowed and sometimes halted local vaccinations.
With various new Covid mutations, including the U.K. and South Africa strains, raising concerns of much-easier transmission, ramping up vaccinations is critical to preventing yet another massive wave of infections.
Stock Market Rally Last Week
U.S. Stock Market Today Overview
Last Update: 4:10 PM ET 1/22/2021
The stock market rally continued to march higher, with the Nasdaq and big-gap techs in charge even as all the major indexes hit new highs.
The Dow Jones Industrial Average rose 0.6% in last week’s stock market trading. The S&P 500 index climbed 1.9%. The Nasdaq composite jumped 4.2%.
Growth stocks had a solid week.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) shot up 4.55%, while the Innovator IBD Breakout Opportunities ETF (BOUT) leapt 5.15%. The iShares Expanded Tech-Software Sector ETF (IGV) climbed 3.1%. The VanEck Vectors Semiconductor ETF (SMH) advanced 2.6%.
Microsoft and AMD earnings are due Tuesday night, with Tesla, Facebook and Apple earnings late Wednesday. Caterpillar results are early Thursday.
Wall Street sees Microsoft earnings per share of $1.64 on sales of $40.18 billion, both up 9%. Cloud revenue, including Azure cloud computing services, are expected to drive growth. Microsoft stock jumped 6.25% to 225.95, clearing a downward-sloping trend line but fading below two other early entries on Friday. The official buy point is 232.96.
Analysts forecast AMD earnings per share up 47% to 47 cents with revenue rising 42% to $3.02 billion. AMD stock rose 5.2% to 92.79 last week, reclaiming a prior 88.82 buy point and its 10-week line. But it’s also in a messy consolidation above the old base.
Analysts expect fiscal Q1 Apple earnings per share of $1.40 on sales of $102.76 billion, both up 12%, with strong holiday sales of the new 5G iPhone as well as updated Mac computers and wearables. Apple stock shot up 9.4% last week to 139.07, clearing a 138.89 cup-with-handle buy point on Friday.
Tesla earnings: Wall Street pegs Tesla earnings surging 107% to 85 cents a share, with revenue up 35% to $10 billion. Guidance on 2021 Tesla deliveries as well as updates on the Cybertruck and two factories under construction will be key.
TSLA stock is extended, but after looking like a climax run, shares have traded relatively tightly over past two weeks. Tesla stock could be working on a high tight flag.
Analysts forecast Facebook earnings per share rising 23% to $3.15, with revenue up 25% to $26.3 billion. Facebook stock rebounded from its 200-day line, surging 9.2% to 274.50, back above its 50-day line. Arguably, FB stock is an early entry from a downward-sloping trend line, but investors may want to see a strong move to signal a shift after months of lagging. Google stock and Snap (SNAP) report the following week.
Wall Street expects Caterpillar earnings to fall 44% to $1.48 a share with sales down 15% to $11.22 billion. Earnings and revenue growth is expected to return in 2021. Caterpillar stock now has a 200.27 three-weeks-tight buy point, according to MarketSmith chart analysis. CAT stock fell 1.4% to 191.94 last week but rebounded from its 21-day line on Friday. Rising above Thursday’s high of 193.72 would offer an aggressive entry. Copper and gold miner Freeport McMoRan (FCX) and Eastman Chemical (EMN) are among several cyclicals reporting this week.
Big Techs Extend Rally, But Aren’t Extended
Much like late August, the big techs are once again leading the Nasdaq as it becomes extended. But there is a key difference. In late August, the tech giants were generally extended after long runs. Now, most are in bases or just breaking out.
In addition to the tech giants touted above, Google and Netflix are in buy range. Amazon and Nvidia are near early entries as they rebound from their 50-day line.
But aside from Netflix, all of these stocks have earnings on tap in the next two weeks. So investors should avoid taking a new position until after results, unless adopting an earnings options strategy.
Stock Market Rally Analysis
The Nasdaq closed the week 7.8% above its 50-day moving average. That’s down from Friday’s 8.1% but still above the 6% level that suggests the index is extended. That raises the risk of a pullback, but the market can continue to get more extended. Last August, the Nasdaq became increasingly separated from moving averages, ultimately closing 11.2% above its 50-day line on Sept. 2. Then, the Nasdaq dived 5% on Sept. 3. Two sessions later and the Nasdaq closed below the 50-day line, wiping out all of August’s gains.
Bullish Sentiment High
Beyond big techs, the frenzy in IPOs and other speculative names seems to be returning. Palantir (PLTR) skyrocketed 25% on Friday. Meanwhile, GameStop (GME) surged 53% on Friday, continuing a massive short squeeze to hit a record high, suddenly breaking a 13-year downturn into oblivion.
Bullish sentiment, already high, likely grew more exuberant over the last several days.
This is a volatile mix heading into this huge earnings week. If, say, Apple, Tesla and Facebook stock all disappointed Wednesday night, that could trigger sharp, broad losses. Alternatively, earnings could be the catalyst for further market gains, at least in the short run.
Ideally the market would move sideways or pull back modestly over a few weeks, letting the 50-day close the gap on the Nasdaq. A short, shallow pullback, like the market had two weeks ago, could provide temporary relief. But that inspire even-riskier investing as investors lose of a market slide.
But the market is going to do what it’s going to do.
What You Should Do
Examine your current holdings. You may want to take partial profits by selling into strength, especially for stocks that look significantly extended. Do you have sufficient cushion in stocks heading into earnings this week? More broadly, what are your lines in the sand for your individual stocks and overall portfolio?
Be cautious about new buys, especially heading into earnings.
But right now, investors don’t need to be defensive. The stock market rally, from the major indexes to the leading stocks, are acting well. Just be prepared to move.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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