Market Rally Breaks Past Resistance; Tesla’s Painful Transition

The stock market rally picked up steam last week with strong gains surpassing key levels. The S&P 500 briefly faced resistance at the 200-day line, but moved above that key level on Friday. There was a buying trend in a large number of major stocks.




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Dow Jones futures will open on Sunday evening along with S&P 500 futures and Nasdaq futures. Over the weekend, bitcoin continued its recent rapid climb.

Investors can gradually add exposure once the market rally improves. While many top stocks are now extended, Wendy (WEN), exxon mobil (XOM), Quanta Services (PWR), Celsius Holdings (CELH) and insulating (PODD) All actionable from initial entries. Wendy’s and PWR stocks have new flat bases, joining XOM stocks and Insulate. CELH stock needs one more week to build proper base.

CELH stock is on SwingTrader and the IBD 50. Celsius, Insulate and Wendy were the three most recent IBD stocks of the day’s pick.

During this, Tesla (TSLA) on Friday announced a major price cut in the US and Europe, a week after slashing prices in China and key Asian markets.

Tesla stock closed marginally lower but rebounded solidly for the week. But the EV giant faces a painful transition as investors increasingly view Tesla as an automaker, not a tech company.

The video embedded in this article discusses the strong week for the market rally and analyzes WEN stock, Quanta Services, and Celsius.

bitcoin price

The bitcoin price briefly reached $21,200 early Saturday. The leading cryptocurrency is currently trading around $20,800, up 9% versus 24 hours ago. Bitcoin was trading below $17,000 as recently as January 8th.

The rise of bitcoin has coincided with a rally in the stock market, showing a return to more speculative investments. This includes growth stocks, especially speculative-type plays like the ARKK ETF. Some meme stocks had a big week, especially bed Bath and Beyond (BBBY). BBBY stock skyrocketed 179%, even as the retailer indicated it was headed for bankruptcy.

dow jones futures today

Dow Jones futures open at 6 p.m. ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.

US stock and bond markets will be closed on Monday for the Martin Luther King Jr. holiday, but other exchanges around the world will remain open.

Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.


Join IBD experts as they analyze actionable stocks in Stock Market Rally on IBD Live


stock market rally

The stock market rally had a strong week, with major indices closing near session highs.

The Dow Jones Industrial Average rose 2% in last week’s stock market trading. The S&P 500 index popped 2.7%. The Nasdaq Composite jumped 4.8%. The small-cap Russell 2000 jumped 5.3%.

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Even with Friday’s jump, the 10-year Treasury yield fell 6 basis points to 3.51%. Markets strongly expect quarter-point hikes in the Fed rate in February and March, but then see policymakers on hold. Falling Treasury yields and brighter economic prospects elsewhere are putting pressure on the dollar, providing another boost to stocks and commodities.

US crude oil futures jumped 8.3% to $79.86 a barrel last week. Copper prices rose by 7.65%.

ETF

Among growth ETFs, the Innovator IBD 50 ETF (FFTY) gained 4.4% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) climbed 2.1%. The iShares Extended Tech-Software Sector ETF (IGV) jumped 4.9%. The VanEck Vectors Semiconductor ETF (SMH) soared 6.7%.

Reflecting more-speculative story stocks, the ARK Innovations ETF (ARKK) gained 14.7% last week and the ARK Genomics ETF (ARKG) rose just over 16%. TSLA stock is a major holding in Ark Invest’s ETF. Cathy Wood’s Ark has reset its Tesla holdings in recent days and weeks.

The SPDR S&P Metals & Mining ETF (XME) jumped 6.3% last week to a seven-month high. The Global X US Infrastructure Development ETF (PAVE) slid 4.2% higher. The US Global Jets ETF (JETS) climbed 9.4%. The SPDR S&P Homebuilders ETF (XHB) gained 4.6% despite weakness KB Home (KBH) earnings. The Energy Select SPDR ETF (XLE) rose 0.14%, with XOM stock a major component. The Financial Select SPDR ETF (XLF) rose 2.1%. The Health Care Select Sector SPDR Fund (XLV) fell 0.2%.


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Stock in Buy Sectors

Wendy’s stock staged a major reversal on Friday, jumping 6% to 23.08 after hitting an intraday low of 21.36. WEN stock reclaimed its 50-day line, moved above the 21-day high and broke above a trendline. It offered early entry into the new flat base. The official buy point according to MarketSmith analysis is 23.88.

Wendy’s on Friday reported its fourth-straight quarter of accelerating sales growth, doubled its dividend and announced a $500 million buyback.

XOM stock rose 2.4% last week to $113.16, its fifth straight weekly gain. Shares are slightly below the official 114.76 buy point, and they won’t extend from the 50-day line with that move. But investors can already get in on Exxon stock.

PWR stock jumped 6.7% last week to 148.50, moving back above the 50-day line, offering an early entry. The shares also reclaimed an earlier 144.41 buy point which is no longer valid.

CELH stock moved above the 50-day and 21-day line on Wednesday, breaking a downtrend, offering several reasons for an early entry. Shares held support at the 21-day high, then hit a higher high seen on Friday. Celsius stock is now actionable after rising 13.2% for the week.

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Insulate stock gained 4.65% to Rs 305.89 in the last week, rebounding from 21-day and 50-day lines. The shares are now actionable. But investors can wait for a break above the trendline, which is currently slightly above Friday’s high of 309.44.

Downshift in Tesla Stock Auto?

Tesla stock rose 8.3% last week to $122.40, continuing its rally from its Jan. 6 bear market low of $101.81. Shares were down 0.9% on Friday despite Tesla announcing sweeping price cuts in the US and Europe. This comes a week after Tesla slashed prices in China and key Asian markets.

The price cut should boost sales, especially in the US, with more Tesla EV variants eligible for the $7,500 tax credit. That means huge price cuts for American consumers. But Tesla’s prized margins are likely to be hurt.

On Tuesday, investors will get weekly China EV registrations, which will show the big jump in Tesla sales as well as any potential impact on rivals. But will Tesla get a lasting boost, especially in China and Europe? Orders lagged behind late 2022, so Tesla needs a big boost in new demand in 2023 to keep up with the current delivery pace.

Already fierce competition in China will intensify in 2023, with Tesla’s price cuts perhaps setting off a wave of margin-killing cuts. Congestion is also increasing rapidly in Europe. Even the US EV market will be more competitive in a year, with declining prices for older cars already exerting a huge downward pressure on the prices of new vehicles.

But putting Tesla’s EV sales aside, TSLA stock has a big problem. Investors increasingly view the EV giant as an automaker, not a tech company. Tesla’s current price-earnings ratio of 33 isn’t very high for a tech growth company. But it is unusually high for an automaker. Auto industry profits and margins shrink relatively quickly, which may be the case with Tesla right now.

TSLA Stock May Deserve a Higher Valuation for a vehicle manufacturer, reflecting the EV giant’s still-strong EPS and sales growth. But even then, this would suggest a much lower valuation than has been claimed until recently.

General Motors (GM), ford (F) and Chrysler-and-Fiat parent stellentis (STLA) all have PE ratios in the single digits. toyota ™ is at 10 o’clock.


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Market Rally Analysis

The stock market rally had an encouraging week, building on January 6’s strong gains. Major indices climbed strongly at key levels. A large number of major stocks flashed buy signals during the week with most holding or increasing gains.

The S&P 500 index rose above its 50-day moving average and approached its 200-day line. The benchmark indices took resistance at that key level on Thursday-Friday but eventually moved above it.

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The Dow Jones, Russell 2000 and S&P Midcap 400 are all above their moving averages and are closing in on their December short-term highs.

The Nasdaq reclaimed its 50-day moving average and moved above the 11,000 level. The laggard index was close to its bear market lows at the start of the year.

On Friday, stocks opened solidly lower, as early earnings hurt airlines, health insurers and bank stocks, Tesla price cuts slammed auto stocks and an analyst downgrade hit big defense contractors.

Even without the negative headlines, the market was arguably due for a pullback after strong gains and with the S&P 500 at the 200-day line.

Nevertheless, the market made a quick comeback and closed higher.

Industrialists, the wider housing sector, several medicals as well as some retailers and restaurants are showing strength.

Tech names are still rare among major stocks, although they are trying to come back. The SMH Chip ETF completed its 200-day line last week, while the IGV Software ETF and ARKK are above their 50-day averages.

The S&P 500 still needs to decisively clear the 200-day line. The December highs are huge for all major indices.

While the stock market appears to be less concerned about the Federal Reserve heading toward a rate hike pause, earnings season will take center stage.


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What should we do now

Investors can make fresh purchases as the stocks continue to improve. But do this slowly. While the market rally has shown strength and resilience in recent days, pullbacks for major indexes, major sectors or individual stocks would be no surprise.

Earnings season will be intense for the next few weeks, creating the potential for major upside moves. Exxon and Tesla stocks with tech giants to report within next three weeks apple (AAPL), Microsoft (MSFT), Amazon.Com (AMZN) and Google parent Alphabet (Google).

So don’t get too concentrated in a particular area even if it is performing well. Strive for a diversity of major stocks.

Bulk up your watchlist. Look for stocks that are executing, setting up, or could potentially execute if they stall or pull back. The broader strengths, at least outside of technology, should offer many opportunities.

Read The Big Picture every day to keep up with market direction and the leading stocks and sectors.

Please follow Ed Carson on Twitter @IBD_ECarson For stock market updates and much more.

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