Long-Term Warning For Market Rally; 5 Giants Offering Early Buy Points – Investor's Business Daily

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Dow Jones futures won’t reopen for trading until Sunday evening, along with S&P 500 futures and Nasdaq futures. Big-cap techs dominated the coronavirus stock market rally last week, including Tesla stock and Apple (AAPL). Amazon.com (AMZN), Adobe (ADBE), Netflix (NFLX), Alibaba (BABA) and Google parent Alphabet (GOOGL) are five large caps in or near buy zones right now.


Is the stock market extended? Looking at a daily Nasdaq chart the current stock market rally does not look extended. But on a monthly chart, the Nasdaq is above upper channel lines going back to 2010. The fact that the latest uptrend has been so reliant on a few big-cap techs, notably Tesla and Apple stock, raises the odds of a pullback, if only for a few days.

But with the stock market trend so strong, investors should remain active. Amazon stock, Adobe, Netflix, Alibaba and Google are all in or near various buy zones. All five have early entries in their recent consolidations.

Early entries offer a good way to scale into a stock. Savvy investors can look for an area of resistance or support below the official buy point.

Amazon and Google stock cleared early entries and are just below official buy points. Netflix is below various entries. Alibaba stock arguably has cleared one early entry, tested another on Friday with the official buy point just above that. Adobe has actually broken past early and official buy points, hitting a record high.

Stock Market Update: A ‘Picture Perfect’ Week

Amazon, Adobe and Netflix stock are on IBD Leaderboard, along with Apple and Tesla. Apple stock is on SwingTrader. Alibaba and Adobe stock are IBD Long-Term Leaders. Amazon stock, Adobe and Netflix are on the IBD 50.

Dow Jones Futures Today

Dow Jones futures will resume trading at 6 p.m. ET Sunday. 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.

Coronavirus News

Coronavirus cases worldwide are at 23.27 million. Covid-19 deaths have topped 805,000.

Coronavirus cases in the U.S. have reached 5.81 million, with deaths above179,000. New Covid-19 cases have been trending lower for nearly a month, with deaths also starting to drift lower.

Coronavirus Stock Market Rally

The coronavirus stock market rally had a strong week, though it was definitely weighted toward large techs.

The Dow Jones Industrial Average was almost exactly flat in last week’s stock market trading. The S&P 500 index climbed 0.7%, hitting a record high. The Nasdaq composite advanced 2.7%, rushing into new-high ground.

Apple stock jumped 8.2% last week, surging above a $2 trillion market cap. Apple is a member of the Dow Jones, S&P 500 and Nasdaq, pushing the major indexes higher. Shares may be getting a lift from the four-for-one Apple stock split on Aug. 31.

A five-for-one Tesla stock split, also on Aug. 31, also seems to have turbocharged the electric vehicle maker. Shares leapt 24% last week after spiking nearly 14% in the prior week.

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.8%. The iShares Expanded Tech-Software Sector ETF (IGV) jumped 3.6%. Adobe stock is a notable holding. The VanEck Vectors Semiconductor ETF (SMH) just edged up 0.1%, with chip-equipment makers hard hit.

Amazon Stock

Amazon stock is in a flat base with an official buy point of 3,344.39. But aside from a July 13 reversal day for Amazon and the Nasdaq, all of the trading had hit resistance just below 3,250. AMZN stock broke past a 3,247.57 early entry on Tuesday. Since then shares have consolidated just below the record high, settling Friday at 3,284.72. That’s still actionable. If and when Amazon breaks past the official buy point, it could offer a chance to add more shares.

Adobe Stock

Adobe stock has cleared multiple entries. First, the software giant rebounded from its 50-day line starting Aug. 11. Then on Thursday, shares rallied past both an early entry of 464.47 as well as the official flat-base buy point of 470.71 to a new high. ADBE stock is still in buy range, closing Friday at 473.22.

Alibaba Stock

Alibaba stock has a flat base with a 268.10 official buy point, according to MarketSmith pattern recognition. On Friday, the Chinese e-commerce giant staged a delay earnings move. A very aggressive investor could have bought 261.39, above Wednesday’s high. For much of Friday, BABA stock traded above an early entry of 266.08, settling for a 3% gain at 265.80.

Google Stock

Google stock convincingly rebounded from its 10-week line, breaking above a short trend line on Tuesday. On Friday, shares briefly cleared the old high of 1,587.05 — with a 1,587.15 buy point — before dipping back to 1,575.57. GOOGL stock was in a five-weeks-tight pattern, a long version of the 3-weeks-tight. If the search giant had held below the old high on Friday, it would have had a short flat base with the same official buy point.

Netflix Stock

Netflix, the last of the three FANG stocks touted here, is the only one not in buy range right now. Shares are finding support at the 10-week line, closing Friday at 492.31. A rebound above 510.92 would offer an early entry. That’s a long way from the current official entry of 575.42.

Two Different Stock Market Channels

As mentioned before, whether or not the current stock market rally is extended depends greatly on what channel you’re tuned into. Looking at the daily Nasdaq chart, the stock market rally still looks safe with an admittedly steep channel.

The tech-heavy index did close 7.7% above its 50-day moving average, but that’s well below the 9.6% at the July 13 intraday peak.

Now look at the monthly Nasdaq chart going back to 2010. As you can see, when the Nasdaq has the upper channel line, it has pulled back or simply butted up against that line for an extended period.

But over the last few weeks, the Nasdaq has pierced convincingly above that long-term channel line.

Ideally, the stock market rally would slow, perhaps with the Nasdaq riding underneath its long-term channel line. The current rally has been far too steep to be sustainable in any case.

The stock market rally is going to do what it’s going to do. The Nasdaq could continue to become extended from the long-term channel. But that would raise the risk of a pullback, with the odds rising that the pullback would be more severe.

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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