Dow Jones futures will open Sunday evening, along with S&P 500 futures and Nasdaq futures. LAte Friday, Moody’s cut its U.S. sovereign outlook to negative.
The stock market rally rebounded powerfully Friday after Thursday’s retreat, with the major indexes clearing October highs. Market breadth is still weak, but leading stocks did well, with more clearing buy points or setting up.
The chip sector is coming on, after software initially led the market rally.
Investors should be looking for stocks setting up and taking advantage of buying opportunities.
The video embedded in this article reviewed the market action in depth and analyzed TSM stock, MercadoLibre and General Electric (GE).
Moody’s Cuts U.S. Outlook
Late Friday, Moody’s Investors Service cut its U.S. outlook to negative from stable, citing high budget deficits and political polarization. Moody’s reaffirmed, for now, its AAA rating on U.S. sovereign debt.
“In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues,” Moody’s expects deficits to “remain very large.”
An increasingly divided country raises the risks that future governments will not tackle long-term issues.
In the short run, a 45-day government funding measure expires Nov. 17, with the risk of a government shutdown still high.
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.
Following the Moody’s negative U.S. outlook, ETFs indicated a 0.1% drop for the Dow Jones, S&P 500 and Nasdaq 100 Friday night
The 10-year Treasury yield climbed slightly to 4.65%.
Stock Market Rally
The stock market rally snapped long winning streaks on the major indexes this past week, but they finished with solid gains Friday.
The Dow Jones Industrial Average rose 0.65% in last week’s stock market trading. The S&P 500 index climbed 1.3%. The Nasdaq composite jumped 2.4%, up just over 2% on Friday. All the major indexes moved above their October highs, another bullish signal.
Market breadth was better Friday but still a concern for the week.
The small-cap Russell 2000 tumbled 3.15% for the week despite Friday’s 1.1%% bounce.
The Invesco S&P 500 Equal Weight ETF (RSP) gained 1.2% Friday but still sank 0.6% for the week.
The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) fared better. While lagging the Nasdaq 100’s big 2.9% weekly gain, QQEW rose 0.7%, moving above its 50-day Friday. A number of big-cap techs beyond the megacaps had strong weeks.
Market leadership is strong. Tech is leading the charge, but leaders hail from a variety of sectors.
A longer market rally pause could be healthy, but bulls don’t want to stop.
The 10-year Treasury yield rose 7 basis points to 4.63%, amid some big daily swings.
U.S. crude oil futures slid 4.15% to $77.17 a barrel last week, but did bounce late in the week
Among growth ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) leapt 4.1%, with Datadog stock in IGV. The VanEck Vectors Semiconductor ETF (SMH) jumped 5.2%. Nvidia stock is the No. 1 holding in SMH, with TSM stock, Broadcom, KLA and LRCX all major components.
SPDR S&P Metals & Mining ETF (XME) sank 3.6% last week as metal prices retreated. SPDR S&P Homebuilders ETF (XHB) edged up 0.1%, thanks to Friday’s 2.1% bounce. The Energy Select SPDR ETF (XLE) slumped 3.8% and the Health Care Select Sector SPDR Fund (XLV) fell 0.9%. The Industrial Select Sector SPDR Fund (XLI) gained 0.9%
The Financial Select SPDR ETF (XLF) edged up 0.4%.
Chip Stocks In Buy Zones
Nvidia stock rose 7.4% this past week to 483.35, clearing a 476.09 double-bottom buy point on Friday. The relative strength line hit a new high. The RS line, the blue line in the charts provided, tracks a stock’s performance vs. the S&P 500 index.
Nvidia earnings are due Nov. 21, so there’s not much time to build a cushion. Also, Microsoft (MSFT) will announce its latest AI advancements at its Ignite 2023 event on Wednesday, with some buzz that it could unveil its own AI chip to ease its dependence on Nvidia.
Broadcom stock leapt 8.5% this past week to 957.52. On Friday, shares cleared resistance going back to the end of May, according to MarketSmith analysis. AVGO stock’s RS line also is at a new high.
Lam Research stock jumped 8.1% to 685.43, clearing a 665 entry from an awkward-looking double-bottom base. KLA stock ran up 6.9% to 534.25, topping a 520.19 buy point. LRCX stock and KLA were among the S&P 500’s top performers Friday. Both could move on Applied Materials (AMAT) earnings, due on Nov. 16. AMAT stock also cleared a buy point Friday.
TSM stock jumped 6.35% on Friday to 97.44 in double normal value, clearing its 200-day, a trendline and a short-term high. On Friday, Taiwan Semiconductor reported October sales rose 15.7% vs. a year earlier and 34.8% vs. September. That signals a turnaround after three quarters of declining earnings and revenue.
The foundry giant makes chips for Nvidia, Broadcom, Apple (AAPL) and many others. It’s also a massive chip-equipment buyer. So Taiwan Semi sales likely helped drive Friday’s bullish moves by NVDA stock, Broadcom, Lam Research and KLA.
Second Chance For These Earnings Winners
MELI stock dipped 1% to 1,374.39 last week after surging 15.6% in the prior week as the Latin American e-commerce and payments giant reported strong earnings. MercadoLibre stock now has a cup-with-handle base with a 1,398.15 buy point.
Roku stock fell 4.1% to 81.31 last week, forging a weekly handle with an 86.40 buy point. In the prior week, shares of the streaming media platform skyrocketed 50% from a five-month low. Roku is still losing money but revenue growth accelerated for the third straight quarter.
Datadog stock shot up 26% to 103.65 for the week on strong earnings and guidance. Shares have consolidated since Tuesday’s spike. DDOG stock is above a 102 buy point from an awkward double-bottom base. But investors may want to use Tuesday’s high of 104.43 as an entry. That could become a handle in a few days.
What To Do Now
The stock market rally is looking healthy, rebounding quickly from Thursday’s pullback. Leading stocks are acting well and expanding.
Investors can continue to gradually add exposure as long as the market and their own positions act well.
Use this weekend to work on your watchlists. Since the Nov. 1-2 follow-through days, a number of stocks have become extended, while many others are setting up.
You want to be ready if and when new leaders break out or clear other buy points.
Earnings season is past its peak but still active. Investors will also get October inflation data and retail sales in a busy week for economic reports.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
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