The stock market rally showed strong and broad action last week, overtaking a surprisingly hawkish Federal Reserve. This builds confidence in the longer term outlook of the uptrend. But with the Nasdaq extending, the chances of a market pullback are high in the near term. Friday may have reflected the start of a slide, but it wasn’t really one.
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A pullback could create new buying opportunities in major stocks, many of which are currently well away from entry. But in the short term, investors should be careful when making new purchases, especially in hot technology areas.
Dow Jones futures will open Sunday night, along with S&P 500 and Nasdaq futures.
BA stock is trading just around a buy point. Boeing (BA) and rival Airbus (EADSY) will likely announce a slew of new orders at the Paris Air Show, which kicked off on Sunday. McKesson (MCK) came out of a consolidation while Blacksmith and nephew (SNN) is above a trendline entry. Marriott International (MAR), Chipotle Mexican Grill (GCM), Boyd Gaming (BYD) and Floor and decor (FND) are close to the buy points. All seven stocks come from non-tech areas of market leadership.
In the meantime, Advanced micro-systems (AMD), samsara (IoT) and Rambus (RMBS) are three hot stocks that are beginning to pull back.
But many leaders are not backing down. Nvidia (NVDA) hit a new high on Friday, up 10% for the week. Metaplatforms (META) hit a 16-month high before closing a fraction lower on Friday. You’re here (TSLA), after two small losses ended a record 13-day winning streak, hit a new eight-month high on Friday.
Tesla, META stock and Nvidia are on the IBD ranking. CMG stock is on the rating watch list. MCK stocks were added to SwingTrader on Friday, joining Boeing and FND stocks. Chipotle and IOT stocks are on the IBD 50. Chipotle and Tesla stocks are on the IBD Big Cap 20. McKesson was the IBD stock of the day on Friday.
The video embedded in the article reviews market action over the past week and analyzes McKesson, Chipotle and AMD stocks.
Dow Jones Futures Today
Dow Jones futures open at 6 p.m. ET, along with S&P 500 and Nasdaq 100 futures.
US stock markets will be closed on Monday, June 19 for the June 19 holiday, but other stock exchanges around the world will be open. Dow futures will trade normally.
Remember that overnight action on futures contracts on Dow and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join the experts at IBD as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally
The stock market rally had a solid week, especially on the Nasdaq, despite generally modest losses on Friday.
The Dow Jones Industrial Average rose 1.25% in stock trading last week, hitting its best levels of the year. The S&P 500 index jumped 2.6%, its best weekly gain since March. The Nasdaq composite jumped 3.25%, its eighth consecutive weekly gain. The small-cap Russell 2000 climbed 0.5%, far from weekly highs.
The 10-year Treasury yield rose 2 basis points to 3.77%.
U.S. crude oil futures rose 2.3% to $71.78 a barrel last week. Copper prices rose 2.5%.
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Among growth ETFs, the Innovator IBD 50 (FFTY) ETF gained 2.1% last week. The iShares Expanded Tech-Software Sector ETF (IGV) jumped 5.2%. The VanEck Vectors Semiconductor (SMH) ETF rose 4.45%, with large holdings in Nvidia and AMD stocks.
The SPDR S&P Metals & Mining ETF (XME) jumped 2.9% last week. The Global X US Infrastructure Development ETF (PAVE) gained 2.6%. US Global Jets (JETS) climbed 5.65%. The SPDR S&P Homebuilders ETF (XHB) rose 2.4%. ETF Energy Select SPDR (XLE) fell 0.6%. The SPDR health care sector fund (XLV) rose 1.4%. MCK stock is XLV.
The SPDR Industrial Select Sector (XLI) fund jumped 3%. The BA share is a major holding of XLI.
The Financial Select SPDR ETF (XLF) rose 1.3%. The SPDR S&P Regional Banking (KRE) ETF fell 0.9% after big gains since early May.
Mirroring stocks with more speculative stories, ETF ARK Innovation (ARKK) rebounded 4.2% last week and ARK Genomics (ARKG) jumped 3.9%. Tesla stock is the top position among Ark Invest’s ETFs.
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Stocks to Watch
BA stock rose 1.2% to 219.99 last week, just below a fixed-base buy point of 221.43. Many other industrial games seem to be extending their 50-day lines, but not Boeing.
MCK stock climbed 3.1% to 406.20, surpassing a buy point of 401.53 on Friday.
SNN stock jumped 6.9% to 32.16 last week, erasing a trendline in a flat base part of a base-to-base formation.
CMG stock fell 0.4% to 2,032.92 in low volume, trading at its 21-day line with the 10-week line catching up. Chipotle has a tight four-week pattern with an official buy point of 2,139.88. This pattern could turn into a flat base in another week.
MAR stock fell 1.5% to 176.36, finding support at the 21-day and 10-week lines. Marriott stock has a buy point of 183.37 from a flat base alongside multiple bases, according to MarketSmith analysis.
BYD stock edged down 0.6% to 68 last week, just above its 10-week line. Boyd Gaming has a buy point of 71.69 from a flat base alongside two long handle cup consolidations. Investors could use 70.04 as an early entry.
FND stock rose 0.3% to 96.26, just above the 50-day line. Floor & Decor stock has a buy point of 101.39 from a cup with handle base, although investors can use 99.50 as an aggressive entry.
AMD stock fell 3.9% to 120.08 last week, reversing in volume from a 52-week high of 132.83 on Tuesday. Stocks are falling back towards their 21-day line and lows from their recent mini-consolidation. AMD has released new AI chips to take on Nvidia, but the market reaction hasn’t been great. Is AMD a potential buy if it finds support? Or are investors waiting for, say, NVDA shares to rest?
IOT stock fell 0.3% to 28.90, reluctantly pulling back over the weekend after nearly surpassing its all-time high of 31.41 at the end of 2021. Shares are trading around the 10-day line, l with Samara’s stock still well above the 21-day line.
The RMBS stock was down 5.2% last week at 60.38, slipping just below the 21-day line. This is the third consecutive weekly decline for Rambus stock.
Market rally analysis
The market rally continues to show impressive strength. Major indexes showed resilience on Wednesday in the face of a surprisingly hawkish Fed, then rose on Thursday. The S&P 500 and Nasdaq hit new 52-week highs while the Dow Jones set new highs in 2023.
Even on Friday, with the Nasdaq clearly extended and the S&P 500 also stretched, the uptrend resisted a pullback.
Market breadth was weak on Friday, but has improved significantly over the past few weeks.
The Invesco S&P 500 Equal Weight ETF (RSP) jumped 2.5% to 148.83, barely falling on Friday. This is a huge change from a few weeks ago. The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) rose 3.2% last week.
The Nasdaq is now 9.1% above its 50-day line, while the Nasdaq 100 is up 10.6%. The S&P 500 is at 5.5%. All of this indicates that a market pullback is likely, with increasing odds that such a pullback will be significant. But stocks could continue to expand even further for some time.
Ideally, the Nasdaq would pause or reluctantly give ground in light volume, letting the moving averages catch up. This would allow major stocks to pause, perhaps pull back to the 21-day or 10-week lines or even forge new bases. Of course, a pullback could be more intense, and even in a slight market pullback, many individual names will suffer outsized losses.
Depending on how slight or how extensive the pullback is, quality stocks outside of the tech sphere could break out or at least sustain. Medical products, industrials, restaurants, travel and various housing-related games are doing well, including Boeing, SNN, CMG, MAR and FND.
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What to do now
With the Nasdaq and so many leaders in extended chips, software and AI, now is not a good time to buy tech. Investors may seek exposure elsewhere. Still, a Nasdaq-led pullback could hit anyone. Investors may also want to save their powder for post-pullback buying opportunities at big tech winners.
You can consider taking partial profits from big winners, either on the rise or when they cross below their 10-day lines. This will depend on the size of your individual positions and your overall exposure, your conviction in various holdings and your own investment style. But have an exit strategy in place.
When a market break or pullback sets in, you’ll want to keep a close eye on stocks finding key support or consolidating around buy points. So fire up your screens this long weekend to keep track of the wide array of leaders and potential leaders.
The market rally has been impressive. Despite some short-term caution, the overall trend is bullish. Act in consequence.
Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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