Dow Jones futures tilted lower overnight, along with S&P 500 futures and Nasdaq futures. Tesla (TSLA) is holding a “Cyber Rodeo” at its Austin plant Thursday night, with Model Y deliveries expected to begin.
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The stock market rally tested key support levels Thursday morning as Treasury yields continued to climb amid continued hawkish Federal Reserve statements. But the major indexes rebounded to close slightly higher.
Investors should be paying attention to sectors that are working but be cautious about new purchases overall. Exxon Mobil (XOM), Lockheed Martin (LMT), Horizon Therapeutics (HZNP), Dollar General (DG) and O’Reilly Auto (ORLY) are five stocks in leading sectors that are in or near buy points.
Tesla stock is on IBD Leaderboard. Tesla and HZNP stock are on the IBD 50. XOM stock is on the Big Cap 20, a list dominated by energy and commodity plays right now. ORLY stock was Thursday’s IBD Stock Of The Day.
Dow Jones Futures Today
Dow Jones futures fell 0.1% vs. fair value. S&P 500 futures and Nasdaq 100 futures edged lower.
The 10-year Treasury yield fell 1 basis point to 2.64%.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Rally
The stock market rally sold off in the morning but then rebounded for slim gains.
The Dow Jones Industrial Average rose 0.25% in Thursday’s stock market trading. The S&P 500 index climbed 0.4%. The Nasdaq composite edged up less than 0.1%. The small-cap Russell 2000 fell 0.4%.
U.S. crude oil prices dipped 0.2% to $96.03 a barrel. Natural gas prices jumped to their highest close since December 2008.
The 10-year Treasury yield rose four basis points to 2.65%, a fresh three-year high and widening the yield curve slightly.
St. Louis Fed President James Bullard, one of the more hawkish policymakers, said the fed funds rate, currently at 0.25%-0.5%, should be at 3.5% to fight high inflation. The Federal Reserve is likely to raise rates by 50 basis points at each of the next three policy meetings, with balance sheet reductions kicking off after the early May event.
ETFs
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) climbed 0.6%, while the Innovator IBD Breakout Opportunities ETF (BOUT) advanced 0.9%. The iShares Expanded Tech-Software Sector ETF (IGV) edged up 0.45%. The VanEck Vectors Semiconductor ETF (SMH) closed just above break-even.
SPDR S&P Metals & Mining ETF (XME) rallied 2.2% and the Global X U.S. Infrastructure Development ETF (PAVE) tilted higher. U.S. Global Jets ETF (JETS) descended 1.4%. SPDR S&P Homebuilders ETF (XHB) slipped 0.5%. The Energy Select SPDR ETF (XLE) rose 1.1%, with XOM stock a major component. The Financial Select SPDR ETF (XLF) dipped 0.1%. The Health Care Select Sector SPDR Fund (XLV) gained 1.9%
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) fell 1.2% and ARK Genomics ETF (ARKG) sank 0.7%. Tesla stock is the No. 1 holding across Ark Invest’s ETFs.
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Exxon Stock
Exxon stock rose 1.7% to 85.05, continuing to consolidate around its 21-day line and just above its 10-week line. Investors could buy XOM stock here or if it tops the March 25 high of 85.49. The oil major should have a proper base after the end of next week.
Several other energy stocks are holding up, including Exxon peers Chevron (CVX) and Shell (SHEL) as well as coal producer Arch Resources (ARCH) and the North Shore Global Uranium ETF (URNM).
Lockheed Stock
Lockheed stock advanced 2.4% to 465.51, clearing a short-term high as it works on a short consolidation. But LMT stock is 4.9% above its 21-day line and 10.1% over its 50-day. Shares could form a new base by the end of next week. A longer pause would let the major averages catch up.
Lockheed stock broke out in late February as Russia’s Ukraine invasion began. Shares raced higher for a few days as investors bet on higher defense spending in the short and long term, especially in Europe and especially on weaponry.
Northrop Grumman (NOC), General Dynamics (GD) and Raytheon Technologies (RTX) are also consolidating, with RTX stock already boasting a flat base.
Horizon Stock
Horizon stock popped 3.2% to 112.39, breaking above a 110.13 handle buy point in a consolidation going back to late October. That 110 area was short-term resistance at the end of last year.
Several biotechs and drug stocks have been showing strength. Vertex Pharmaceuticals (VRTX), Regeneron (REGN) and Eli Lilly (LLY) are now extended, while Pfizer (PFE) is flashing a possible trendline entry. More broadly, medicals are doing well, with health insurers hitting new highs and device makers building the right side of bases.
Dollar General Stock
Dollar General stock rose 1.1% to 241.69, hitting a record high and climbing within a buy zone. On Wednesday, DG stock jumped 4.2% to 239, clearing a 232.87 cup-with-handle buy point, according to MarketSmith analysis. The relative strength line, the blue line in the chart provided, is at a 52-week high.
Several discounters are doing well as investors bet on penny-pinching consumers focusing their spending on low-cost staples. Dollar Tree (DLTR) and Costco Wholesale (COST), which broke out a few weeks ago, are slightly extended now. Walmart (WMT) is technically in a buy zone but appears extended from a safer, early entry. Target (TGT) is starting to bounce back.
O’Reilly Stock
O’Reilly stock rose 3.7% to 726.83, breaking out to a new high. Investors could use 705.10 as an alternative entry or handle, though a prior 687.33 cup-with-handle buy point was still technically valid.
The relative strength line is near a new high on a daily chart and at record levels on a weekly chart.
With new cars scarce and expensive and consumers looking to curb spending amid high inflation, many drivers are keeping used vehicles longer and doing more auto work at home. O’Reilly rival AutoZone (AZO) broke out from a double-bottom base on Thursday.
Tesla Austin ‘Cyber Rodeo’
CEO Elon Musk will is scheduled to appear after 10 p.m. ET at a Tesla Austin plant event, dubbed the Cyber Rodeo. Tesla is expected to officially begin Model Y deliveries from the plant. That follows initial deliveries from the Berlin-area plant last month. The two new plants will greatly expand Tesla’s capacity, but are expected to slowly ramp up production.
Longer term, Austin will produce other vehicles, notably the Cybertruck. Musk said earlier this year that he aims to finish the Cybertruck’s design this year, with production “hopefully” starting next year.
Meanwhile, the Tesla Shanghai plant has been closed since March 28 with the city in lockdown due to surging Covid cases. It’s possible Tesla will be able to restart Shanghai production soon, with workers staying on site.
Tesla Stock
The Tesla Austin “Cyber Rodeo” will be too late for extended trading, so investors will weigh in Friday morning.
On Thursday, Tesla stock gained 1.1% to 1,057.26, reversing higher with the market. Shares are still in a pullback after racing up to a trendline entry early this week. The EV giant could be forming a handle within a deep cup base. A retreat to slightly below the 21-day line and 1,000 level could be helpful in shaking out some weak holders. A longer handle also would let the 50-day moving average catch up somewhat.
With highly valued growth stocks out of favor as interest rates rise, Tesla stock stands out as an exception. Can it hold up or move higher in this environment?
Tesla earnings are due on April 20.
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Market Rally Analysis
The stock market rally staged a much-needed upside reversal, finding support at key levels Thursday.
The market rally moved to “uptrend under pressure” Wednesday as the major indexes fell below their 21-day moving averages. On Thursday morning, they weakened further, with the Nasdaq composite and Dow Jones undercutting their 50-day line.
But bulls fought back in the afternoon. The Nasdaq and Dow Jones popped back above the 50-day line. However, while the Dow reclaimed its 21-day, the Nasdaq hit resistance at that level. The S&P 500 reclaimed its 200-day and 21-day lines.
The Nasdaq moving back above its 21-day line would be a good sign for the market rally.
So would better breadth. Losers outnumbered winners on the NYSE and Nasdaq. New lows greatly outnumbered new highs on Thursday. The small-cap Russell 2000 and the S&P MidCap 400 rebounded off lows Thursday, but closed slightly lower. Both tumbled below their 50-day lines on Wednesday.
Growth stocks are still damaged. Meanwhile, concerns are growing that inflation — and Fed rate hikes to fight inflation — will weigh on consumer discretionary spending broadly.
Several sectors are still faring well. In addition to commodities, medicals, defense contractors, and discounters, investors can find REITs and insurance companies holding up well.
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What To Do Now
Just because the major indexes found support Thursday doesn’t mean they will continue to do so. The market rally is under pressure. Investors should wait for more strength before broadly adding exposure. There are few setups right now, while the growth sector faces a number of headwinds.
New buys, if any, should be small and limited to stocks in strong sectors. Don’t get too exposed to a particular sector, even if it’s working.
Remain engaged. If the market rally breaks significantly lower from here, investors will want to exit more positions, even going entirely to cash. On the other hand, a few good days and the market rally will look much better, while a number of stocks will likely flash buy signals.
In the latter scenario, investors want to be ready to act. So cast a wide net and keep working on your watchlists.
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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