Dow Jones futures were little changed late Monday, along with S&P 500 futures and Nasdaq futures. The stock market rally faced a test to start 2021, with the Dow Jones, S&P 500 index and Nasdaq composite all undercutting a key level intraday, but closing above it.
It wasn’t clear what spurred Monday’s sell-off. Tax selling in the new year, new coronavirus cases and shutdowns as well as Tuesday’s Georgia Senate runoffs may have played a role.
Tesla stock popped to a new high while China rivals Nio (NIO), Xpeng Motors (XPEV), Li Auto (LI) and BYD Co. (BYDDF) rose strongly. All gained on strong sales, with the exception of BYD Co. (BYDDF), which will report December deliveries soon.
Chip stocks tried to rally, but aside from Taiwan Semiconductor (TSM), most erased their morning gains.
Software leaders extended losses, with Shopify (SHOP) round-tripping a double-digit gain. Highflying IPOs continued to come back to earth, with QuantumScape (QS) crashing and Fubo (FUBO) continuing to plunge.
Finally, megacap techs sold off as well, including Apple stock, Microsoft (MSFT) and Amazon.com (AMZN). Apple (AAPL) is still close to record highs while Microsoft and Amazon stock fell to their 50-day lines. All could be close to forming handles that would offer a lower buy point. The question is whether Monday’s slide is a temporary shakeout or the beginning of a long retreat.
That’s the question for the broader stock market rally too.
Dow Jones Futures Today
Dow Jones futures edged higher vs. fair value. S&P 500 futures rose 0.1%. Nasdaq 100 futures were flat.
Coronavirus cases worldwide reached 86.07 million. Covid-19 deaths topped 1.85 million.
Coronavirus cases in the U.S. have hit 21.32 million, with deaths above 361,000.
U.K. Prime Minister Boris Johnson said England would enter a national lockdown, after six straight days of more than 50,000 new coronavirus cases. A new Covid-19 variant that appears to be much more contagious has hit the country hard. The U.K. began AstraZeneca (AZN) coronavirus vaccinations on Monday, a few weeks after being the first country to offer Pfizer (PFE) vaccine jabs.
U.S. health officials are mulling whether to give half doses of the Moderna coronavirus vaccine to immunize the population faster as states struggle to reach people quickly. Half doses appear to be just as effective as full Moderna (MRNA) vaccine jabs for adults age 18-55
Stock Market Rally
U.S. Stock Market Today Overview
Last Update: 4:26 PM ET 1/4/2021
The stock market rally had a nasty sell-off to start 2021, but came off lows.
The Dow Jones Industrial Average sank 1.25% in Monday’s stock market trading. The S&P 500 index and Nasdaq composite retreated 1.5%. All three major indexes fell below their 21-day exponential moving averages intraday, but closed above that key level.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) and the Innovator IBD Breakout Opportunities ETF (BOUT) sank 0.9%. The SPDR Gold Shares ETF (GLD) jumped 2.2% on a big day for gold prices and mining stocks, fueled by the dollar falling to fresh low.
On the plus side, EV stocks remain hot. Tesla stock rose 3.4%, hitting yet another record high. Nio stock leapt 9.75%, closing in on a new breakout after previously flashing a bullish rebound from the 10-week line. Li Auto stock surged almost 13%, vaulting back above its 50-day and 10-week lines. Xpeng stock has rebounded from its 50-day line, though it closed well off lows. BYD stock popped 6.2% to a new high.
Apple Stock, Megacaps
Apple stock fell 2.5%, but closed above its 21-day line. Microsoft lost 2.1%, but bounced from its 50-day line. Amazon slid 2.2%, finding support just above its 50-day.
Apple stock is one day from a high handle after briefly clearing a 138.08 buy point last week. Assuming a handle forms, investors could use the 138.08 or 138.89 as an entry. Microsoft stock technically had a handle on a weekly chart with a 227.28 entry, but Monday’s selling offers a bigger shakeout. Amazon stock could craft a handle just above the midpoint of its base.
Shopify Stock, Software Slide
Shopify stock fell 3.5%, round-tripping a 15% breakout. Twilio (TWLO) also erased a double-digit gain, though it closed just above its buy point. Many software makers have been pulling back over the past week or two. It’s unclear whether this is a temporary pause or a shift away from cloud computing.
The iShares Expanded Tech-Software Sector ETF (IGV) retreated 2%, with MSFT stock a top holding.
TSM Stock Rallies
Taiwan Semiconductor led an opening charge in chip stocks. TSM stock closed up 2.4% to 111.70, well off highs but still up solidly. However, AMD (AMD), Nvidia (NVDA) and Applied Materials (AMAT) gave back nearly all of their intraday gains, along with many other chip names. TSM stock is 3.5% above a three-weeks-tight entry of 107.84.
The VanEck Vectors Semiconductor ETF (SMH) edged up 0.2%, with TSM stock the No. 1 component.
Meanwhile, among speculative IPOs, QuantumScape stock plunged 41%. QS stock, a solid-state battery play with no revenue, is now down 62% from its Dec. 23 peak. FuboTV (FUBO) skidded 13%, undercutting its 50-day line for the first time. It’s now 61% below its Dec. 22 peak.
Georgia Senate Runoffs
There is a growing expectation that Democrats will seize both Georgia Senate seats in Tuesday’s runoff election. That would give Democrats control of the Senate, with Vice President-elect Kamala Harris holding the tiebreaker after she’s in office.
Unified Democratic control likely would mean a bigger stimulus package. It could ultimately mean higher taxes and regulatory changes for health care, marijuana and more.
Whether or not investors want to see a GOP or Democratic Senate, there is one thing the stock market doesn’t like: uncertainty. Some of Monday’s losses could reflect preelection uncertainty, much like the much-larger market retreat before Election Day.
Stock Market Analysis
The stock market rally had its first serious test in weeks, with the Nasdaq touching its 21-day line for the first time in nearly two months. Such tests can be healthy. Bullish sentiment has been very high for several weeks. Cooling that off, along with IPO froth fading for QuantumScape stock and Fubo, is a positive move.
Monday’s retreat, following relatively modest gains in the past couple of weeks, has let the moving averages catch up. The Nasdaq is just 2.6% above its 10-week line now vs. 6.7% three weeks earlier.
Finally, pullbacks can offer a chance for leading stocks to finish bases or form handles, such as with Apple stock or Microsoft. For leaders that don’t slow down, such as Taiwan Semi or Nio stock, a market pullback gives a chance to see huge gains in relative strength.
However, that’s the positive spin. On the flip side, if the stock market rally suffers further losses, tumbling through the 21-day line and testing the 50-day, Monday’s “support day” won’t mean that much. Handles, bases and breakouts will fizzle.
What To Do Now
So investors need to use prudent portfolio management. If stocks are erasing gains or becoming losers, act decisively. Check your overall exposure, as well as your exposure to various sectors. You want to be in leading stocks, but don’t get too concentrated in a particular sector or theme.
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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