Dow Jones futures were little changed late Thursday, along with S&P 500 futures and Nasdaq futures, with Micron Technology (MU) earnings and a Boeing 737 Max settlement with the Justice Department. The stock market rally had a powerful session, with the Dow Jones, S&P 500 index, Nasdaq composite and Russell 2000 all hitting record highs.
But there are signs that the market rally is getting extended.
Meanwhile, Tesla (TSLA) continued to soar on yet another price target hike, making Elon Musk the richest man in the world. But is Tesla stock getting extended?
Micron earnings topped views, while the memory chip maker also guided high. After rallying to its best levels since 2000, Micron stock rose modestly overnight.
Micron earnings should be good news for other memory plays, including equipment giants Lam Research (LRCX), Applied Materials (AMAT) and KLA Corp. (KLAC). LRCX stock, AMAT and KLA have been surging this week, perhaps in anticipation of bullish Micron earnings.
Taiwan Semiconductor, a major customer for Lam Research, Applied Materials and KLA, reports earnings next week. Taiwan Semi is expected to announce heavy capital spending. TSM stock rallied 5% on Thursday, hitting a fresh high.
Boeing 737 Max Settlement
Boeing (BA) will pay more than $2.5 billion settle a Justice Department criminal charge that the Dow Jones aerospace giant concealed key information from the Federal Aviation Administration regulators investigating the two 737 Max crashes. It’ll pay a criminal penalty of $243.6 million, compensation payments to Boeing customers of $1.77 billion and $500 million for a crash victim beneficiaries fund.
Boeing stock fell 1% in overnight trading. The muted reaction suggests investors are happy to move forward, with the Boeing 737 Max flying again. BA stock edged up 0.8% to 212.71 on Thursday.
Dow Jones Futures Today
Dow Jones futures were flat vs. fair value. S&P 500 futures and Nasdaq 100 futures were little changed.
That’s been true for the past several days. Dow Jones futures have not foreshadowed regular-session
Coronavirus cases worldwide reached 88.36 million. Covid-19 deaths topped 1.90 million.
Coronavirus cases in the U.S. have hit 22.05 million, with deaths above 372,000. On Wednesday, the U.S. hit daily records for new Covid cases and coronavirus deaths.
Election 2020 Is Finally Over
A day after pro-Trump rioters stormed the Capitol building, there is now relevant clarity from Washington. With the Georgia runoffs and the Electoral College certification count now out of the way, the Election 2020 appears to finally be over. Joe Biden will become president on Jan. 20, with Democrats also holding the House and Senate, albeit with wafer-thin majorities.
Stock and bond investors are pricing in expectations for bigger stimulus and other spending measures in the coming months, with policies that boost alternative energy and marijuana plays. Expect greater involvement in health care, but the changes could help health insurers and hospitals.
Stock Market Rally
U.S. Stock Market Today Overview
Last Update: 4:06 PM ET 1/7/2021
The stock market rally enjoyed big gains Wednesday. Tech and growth names reclaimed leadership but it was a broad-based advance.
The Dow Jones Industrial Average rose 0.7% in Thursday’s stock market trading. The S&P 500 index popped 1.5%. The Nasdaq composite leapt 2.6%. The Russell 2000 climbed 1.9%.
Bitcoin surged above $40,000 intraday before pulling back slightly.
Growth stocks had a big day. Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rallied 3.1%, while the Innovator IBD Breakout Opportunities ETF (BOUT) advanced 3.6%. The iShares Expanded Tech-Software Sector ETF (IGV) 2.75%, rebounding from its 10-week line after slumping since Dec. 22. The VanEck Vectors Semiconductor ETF (SMH) continued to power higher, up 4.1%. TSM stock is the No. 1 holding of SMH. MU stock, AMAT, LRCX and KLAC are also notable components.
Micron earnings jumped 48% to 71 cents for its fiscal first quarter. Revenue grew 12% to 5.77 billion. Wall Street had forecast Micron earnings of 71 cents a share on sales of $5.73 billion.
Citing improving DRAM fundamentals, the memory chip giant guided to fiscal Q2 EPS of 75 cents on sales of $5.8 billion. Analysts expected Micron earnings of 67 cents on revenue of $5.55 billion.
Micron stock rose 2% in after-hours action. On Wednesday, MU stock 2.6% to 79.11, a fresh 20-year high. That was just out of range vs. three-weeks-tight pattern with a 74.71 buy point. Micron stock initially cleared that level on Dec. 31, but it was a risky buy with earnings looming.
Lam Research, perhaps the most memory-exposed of the big chip-equipment makers, was little changed in extended trade. LRCX stock rose 3.6% on Wednesday to 514.46, briefly clearing a short consolidation and hitting a record high. Shares have rallied 8.9% this week, rebounding from its 21-day exponential moving average and from just above the 10-week line, offering an aggressive entry for LRCX stock.
AMAT stock edged higher in overnight trade. On Wednesday, Applied Materials stock popped 4.1% to 94.56, hitting a new high after clearing a short consolidation. AMAT stock is up 9.6% this week, also rebounding from its 21-day line.
KLA stock was quiet in late trading. On Wednesday, shares jumped 4.9% to 278.19, clearing a four-week consolidation that’s actionable. KLAC stock has surged 9.3% so far this week, rebounding from its 21-day and near its 10-week line, like Lam Research.
Taiwan Semiconductor earnings are due Jan. 14. The capital spending forecast for the world’s largest chip foundry will be key for Lam, Applied Materials, KLA and others.
Tesla Stock Extended?
Is Tesla stock getting too extended? TSLA stock is up nearly 16% this week and 75% from the 466 cup-with-handle buy point cleared on Nov. 18. It’s now 136% above its 200-day line, a huge gap so deep into a rally.
William O’Neil research has found that when growth stocks get 100%-120% above their 200-day line it’s a big warning sign. It’s not a sell signal, but a shot across the bow. Investors should be on the lookout for defensive sell signals, such as new highs in low volume or climax-type action. Investors also could sell some shares into strength.
Tesla stock appears to heading towards vertical once again, rising for 10 straight sessions, though it’s not showing classic climax behavior.
Take a look at the character of TSLA stock.
In September 2013, at the end of Tesla’s first big run, shares were 129% above its 200-day line.
On Feb. 4, 2020, Tesla stock hit a peak after a climax-type run, closing the day 198% above its 200-day line.
On July 17, TSLA stock closed up 145% above its 200-day, and that’s after reversing lower from a big intraday spike.
On Aug. 31, Tesla stock set a record close, up 191% from the 200-day line. Shares officially peaked intraday on Sept. 1.
Tesla stock is driving and riding an EV stock frenzy. Chinese rival Nio (NIO) rose 7.5% to 54.28, nearing a 57.30 buy point, according to MarketSmith analysis. It’s currently 171% above its 200-day line. But when Nio stock set a closing high on Nov. 23, it was 318% above the 200-day.
Both Tesla stock and Nio continued rising overnight.
Stock Market Rally Extended?
How about the broader stock market rally?
The Nasdaq is now 7.2% above its 50-day line. That’s getting slightly extended. Typically, 6% is where the Nasdaq might pull back. Over the past year, getting to 7% or more has often led to some brief pullbacks as well as the September correction.
Usually 6% is where it would typically pullback. In the past year 7% and even higher has led to brief pullbacks as well as the September correction.
On Dec. 8, the Nasdaq closed 7.7% above its 50-day line. The following session, the Nasdaq sank 1.9%, with further selling the following morning before recovering.
Meanwhile, QQQ, the Nasdaq 100 ETF is 5.6% above its 50-day, reflecting the lackluster performance of tech giants. The S&P 500 is 5.4% above that key level. That’s certainly on the edge of being extended for the broad market index
Bullish sentiment remains relatively high while pockets of froth — Bitcoin and related plays, electric vehicle stocks such as Tesla and some recent IPOs — remain.
Ideally, the major indexes would move sideways or edge lower for a few weeks, as the S&P 500 did heading into Christmas. That would let the 50-day line catch up to the major indexes without an unnerving sell-off. It would also let leading stocks set up new bases, tight patterns or handles. But, the market is going to do what it’s going to do.
What To Do Now
Investors should stay vigilant — always a good idea. There’s no compelling need to sell, though there’s nothing wrong with selling into strength. Look at your holdings. Are some getting too extended? Is there too much exposure to 2020 winners that have been lagging, such as tech titans and cloud software?
Consider the stock market rally’s recent tests of the 21-day moving averages. Many growth stocks suffered significant losses on what was ultimately a modest, brief market pullback. A Nasdaq retreat to to the 50-day line likely would trigger sharp sell-offs in many market leaders.
Make sure to cast a wide net for your watchlists. Focus on relative strength and companies with strong earnings estimates. Many cyclical stocks had a terrible 2020 due to coronavirus shutdowns and severe economic recession, but are rebounding now with analysts betting on a comeback 2021.
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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