Last week’s rally, led by the Nasdaq composite, signaled the stock market is looking healthier. But which stocks and sectors are likely to lead?
The FANG+ stocks of Apple (AAPL), Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Google parent Alphabet (GOOGL) generally have been performing well. Salesforce.com (CRM) and other software stocks have been winners. Payment stocks are a pocket of strength. Many retail names, from Lululemon (LULU) to TJX (TJX) have been strong. Energy stocks from Chevron (CVX) to Marathon Oil (MRO) are doing well, but are subject to the ups and downs of crude oil prices. Biotechs are trying to make a recovery, with Biogen (BIIB) skyrocketing Friday on positive Alzheimer’s drug news.
Meanwhile, chips are still well off their highs, a bad sign for any stock market rally. Financials are near 2018 lows, with JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC) kicking off earnings season Friday.
Dow Futures Today
Dow futures rose 0.5% vs. fair value. S&P 500 futures climbed 0.5%. Nasdaq 100 futures were 0.5% above fair value. Keep in mind that Dow Jones futures and other overnight action doesn’t always translate into actual trading in the next regular session.
China’s Shanghai composite roared 2.5% higher on Monday, after tumbling into a bear market in recent weeks. Hong Kong’s Hang Seng advanced 1.3%. and Japan’s Nikkei 1.2%. European markets showed modest gains intraday.
During last week’s holiday-shortened week, the stock market averages were volatile but ultimately rallied. The Nasdaq composite rallied 2.4%, the S&P 500 1.5% and the Dow Jones 0.8%. Friday’s post-jobs, post-China tariffs rally was particularly significant. If you haven’t already, you should read the latest Big Picture column.
The stock market came under pressure amid Trump trade war tariffs and threats over the past several weeks. President Donald Trump on Friday imposed tariffs on $34 billion worth of Chinese goods, quickly matched by Beijing. Trump also threatened tariffs on virtually all Chinese imports. But for now, Wall Street has decided the Trump trade impact has been priced into stocks.
Stock Index Charts Vs. Stock Charts
If you look at the Nasdaq composite over the last several months, the tech-heavy index looks like it broke out on June 1, rallied for a few weeks, then erased those gains before rebounding again last week from its 50-day moving average.
The S&P 500 index and Dow Jones have been consolidating since late January, with the S&P 500 in somewhat better shape.
Stocks, even top stocks, tend to track the broader stock market. But sector rotations into and out of China internets, software stocks and energy names have left many individual stock charts looking more volatile.
Apple, FANG Stocks
Amazon stock and especially Netflix stock have been two of the biggest stock market winners in 2018. Facebook stock, after a scandalous spring, is at record highs, slightly extended from a buy point. Apple stock is in buy range from 179.04 double-bottom entry. The Dow Jones component has pulled back to its 50-day line and could be working on a new consolidation. Alphabet (GOOGL) is below a buy point after a low-volume breakout last month and hitting resistance at its old high.
Software Stocks
Software accounts for four of the top 10 groups in the 197 industries that IBD tracks. Two more are in the top 20.
Buying and holding individual software stocks has been a challenge. Salesforce, the top stock in the No. 3-ranked enterprise software group, staged a low-volume breakout in early May, then promptly undercut the buy point. It didn’t trigger a 7%-8% loss that would trigger an automatic sell. By the end of May, following quarterly earnings, Salesforce stock was back in buy range and is now modestly extended.
Meanwhile, some stocks did trigger the 7%-8% loss sell rule, like Workday (WDAY) and Red Hat (RHT), while others round-tripped double-digit gains, such as Qualys (QLYS).
Software Stocks To Watch:
Okta (OKTA), an April 2017 cybersecurity IPO, is finding support at its 50-day moving average for the first time since a late April breakout. A solid gain in heavy volume could offer a buying opportunity. Alternatively, Okta could continue to consolidate for a few weeks, forming a new base and buy point.
Collaboration software maker Atlassian (TEAM) broke out last October. Anyone holding Atlassian stock since then would be sitting pretty. Since then the stock has staged a few failed breakouts but still moved up, generally following its 50-day. Atlassian stock is once again finding 50-day support but needs at least another week to form a proper base.
Retail, Apparel Stocks
Lululemon Athletica and Canada Goose (GOOS) are among the trendy apparel retail stock that have boomed in 2018. Specialty discounters such as TJX are faring well too, with TJX rival Ross Stores (ROST) stock in buy range currently. Five Below (FIVE) and Dollar General (DG) are setting up near buy points.
An improving jobs market and Trump tax cuts have fueled consumers’ wallets and confidence. Most retailers also aren’t that exposed to Trump trade wars with Europe, China and others.
Energy Stocks
Energy stocks are tricky to play because they tend to rise and fall with crude prices. (Refiners tend to benefit from a wider “crack spread” between crude and gasoline prices.)
EOG Resources (EOG), a recent IBD Stock of the Day, broke out in early May and ran up for a couple of weeks as crude futures rallied. But the EOG stock pulled back below the buy point and found support at the 50-day line in June as crude also backed off multiyear highs. EOG Resources, known as the “Apple of Oil,” is setting up in a new base with crude hitting its best levels since 2014.
Marathon Oil, another IBD Stock of the Day, also broke out in early May and ran up. Marathon Oil stock also pulled back to its 50-day line, but never undercut the buy point. Shares are now in a flat base within a base-on-base formation.
Biogen Stock Buoys Biotechs
Biogen shot up nearly 20% to 357.48 on Friday, racing toward a 370.67 cup-base entry. Vertex Pharmaceuticals (VRTX) also is closing in on a buy point. But both Biogen and Vertex Pharma have relative strength lines, while improving, that were in downtrends for several months. The relative strength line tracks a stock’s performance vs. the S&P 500 index
Notable biotech ETFs, including iShares Nasdaq Biotech (IBB) and the triple-levered Direxion Daily S&P Biotech Bull (LABU) also are approaching possible buy points, but with RS lines that have made much headway over the past year.
Payment Stocks
Payment stocks have been a pocket of strength. Mastercard (MA) and Dow Jones component Visa (V) have been consolidating near record highs for a few weeks, finding support around their 50-day or 10-week lines. Square (SQ) has also been acting well. PayPal (PYPL) is close to record highs, but its recent breakout fizzled and its RS line has been going sideways since late 2017.
