Dow Jones futures edged higher Monday morning, along with S&P 500 futures. Nasdaq futures tilted higher. Merck announced a sizeable biotech deal and positive drug trial results while Tesla and Netflix are among this week's notable earnings reports. Apple has a new buy point.
The stock market rally advanced modestly this past week, with some sizable gains and reversals. Recession fears are rising, even as inflation cools.
There weren't too many buying opportunities. Some stocks flashed buy signals, then quickly fell back. Investors should be cautious about adding exposure in the current environment. Amid market volatility, Apple, Lululemon Athletica and Regeneron Pharmaceuticals have forged bullish tight patterns.
Earnings season is heating up. Tesla, ASML, Netflix and DHI stock are all near buy points with earnings on tap. ASML and D.R. Horton provided insight into their respective groups.
Meanwhile, Western Alliance Bank is among the many banks and financials reporting this coming week, with Charles Schwab topping EPS views early Monday. How is this Phoenix-based bank holding up? WAL stock has been among the most embattled in recent weeks.
LULU stock is on the IBD Leaderboard watchlist and the IBD 50.
Merck Buys Prometheus
Dow Jones giant Merck will buy Prometheus Biosciences for $200 per share in cash, with the deal valued at nearly $10.8 billion. That's a 75% premium to RXDX stock's Friday close. Clinical-stage Prometheus skyrocketed 166% on Dec. 7 and 22% on Dec. 8 following strong phase 2 trial results for treating ulcerative colitis and Crohn's disease. Since then shares have largely moved sideways.
RXDX stock shot up 70% in premarket trade, while Merck edged lower.
Separately, Merck and Moderna reported that their cancer vaccine showed strong results in melanoma patients, according to phase 2b trial. Patients received Moderna's personalized mRNA therapy with Merk's cancer drug Keytruda. The pharma companies plan to begin a phase 3 trial later this year and expand the vaccine to treat other forms of cancer.
MRNA stock rose modestly.
Dow Jones Futures Today
Dow Jones futures rose 0.1% vs. fair value. S&P 500 futures climbed 0.1% and Nasdaq 100 futures advanced slightly.
Chip-equipment makers fell on reports that Taiwan Semiconductor will slash capital spending plans when it reports earnings early Thursday.
Microsoft rose on an analyst upgrade. Google parent Alphabet threatened to fall back below a buy point on a New York Times report that Samsung may replace Google with Microsoft's Bing as its default search engine on its phones.
China internet and EV makers rallied, in part as Hong Kong's Hang Seng advanced 1.7% Monday.
The 10-year Treasury yield rose 3 basis points to 3.55%.
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 had modest gains for the week, despite volatile action day to day.
The Dow Jones Industrial Average popped 1.2% in last week's stock market trading. The S&P 500 index gained 0.8%. The Nasdaq composite edged up 0.3%. The small-cap Russell 2000 advanced 1.5% in an inside week.
The 10-year Treasury yield rose 14 basis points to 3.52%.
U.S. crude oil futures rose 2.3% to $82.52 a barrel last week.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF gained 2.65% last week, while the Innovator IBD Breakout Opportunities ETF advanced 1.9%. The iShares Expanded Tech-Software Sector ETF gained 0.5%. The VanEck Vectors Semiconductor ETF dipped 0.1% after tumbling 4.1% in the prior week. ASML stock is a big SMH holding.
Reflecting more-speculative story stocks, ARK Innovation ETF rose 0.6% last week and ARK Genomics ETF gained 2%. Tesla stock is the top holding across Ark Invest's ETFs.
SPDR S&P Metals & Mining ETF advanced 2% last week. The Global X U.S. Infrastructure Development ETF climbed 2.7%. U.S. Global Jets ETF sank 1.1%. SPDR S&P Homebuilders ETF jumped 4.1%. The Energy Select SPDR ETF rallied 2.65%. The Health Care Select Sector SPDR Fund added 0.8%.
The Financial Select SPDR ETF rebounded 2.8%. But the SPDR S&P Regional Banking ETF slipped 0.75%. WAL stock is among the many KRE holdings.
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Apple Stock, Lululemon
Apple stock, Lululemon and Regeneron have all forged tight patterns, but in different circumstances.
Apple stock rose 0.3% to 165.21 last week, rebounding from the 21-day line on Thursday. Shares edged down 0.15% in the prior week. With two straight weekly closes of 1%-1.5% within the prior week, that qualifies as a three-weeks-tight. The AAPL stock buy point is 166.94. That would be slightly extended from a flat base cleared a month ago, but could provide a place for existing holders to add a few shares.
LULU stock climbed 1.1% to 368.25, also creating a three-weeks-tight with a 371.36 buy point. The yoga apparel retailer has held fast after an earnings gap-up. Lululemon's 3-week tight is within a cup base. Indeed, on a daily chart, the tight pattern acts a handle. So investors could use a breakout as a place to start a position. Ideally, LULU stock would offer more of a shakeout first.
REGN stock nudged up 0.1% to 829.33, now boasting a four-weeks-tight pattern with an 837.65 entry. The biotech giant is still in buy range of a flat base breakout from 800.58. Investors could use a move past the tight entry as a place to start or add to a Regeneron stock position.
Tesla Earnings
Tesla earnings for the first quarter are due Wednesday evening. The electric vehicle giant reported record Q1 deliveries earlier this month, thanks to big price cuts and new U.S. EV credits. Even so deliveries fell short of views, with production once again exceeding sales substantially.
Now investors will see how much that affected Tesla's prized profit margins, which had already been starting to slide last year.
On Friday, Tesla cut prices in Europe, Singapore and Israel, though the European cuts largely absorbed early March discounts. A week earlier, Tesla cut U.S. prices on all its vehicles. That points to further margin pressure in the second quarter.
Tesla stock dipped 6 cents to 185 in the past week after tumbling 10.8% in the prior week. Shares hit resistance at the 21-day and 50-day lines. TSLA stock has a cup-with-handle base that formed below the 200-day moving average, which is not great. So while Tesla has a 207.89 buy point, investors might wait for a decisive move above the 200-day, which is now below 213.
Another possibility is if Tesla stock breaks above the 50-day line on earnings, offering an early entry with a little room to the 200-day.
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Netflix Earnings
Netflix earnings are due Tuesday night. After a tough 2022, profits are expected to bounce back. Subscription gains often are more important than earnings for Netflix. The results will also be important for streaming rivals such as Disney, as well as Roku.
After more than doubling from July to early February, Netflix stock forged a new cup-with-handle base with a 349.90 buy point. The handle has formed in scant volume and with support at the 50-day line. NFLX stock edged down 0.2% for the week to 338.63.
ASML Earnings
ASML stock will report early Wednesday morning, with peer Lam Research due after the close. ASML earnings also are bouncing back in 2023 after a difficult 2022. After nearly doubling from October to early February, ASML stock has forged a cup-with-handle base, according to MarketSmith analysis. Shares rose 1.4% to 666.20 last week, rebounding from the 50-day line. The buy point is 683.28.
D.R. Horton Earnings
D.R. Horton earnings are due early Thursday, kicking off results for homebuilders, several of which are in or near buy zones. The homebuilding giant is expected to report a big EPS decline, like other rivals. Guidance will be key. DHI stock rose 2.7% to 98.25. On Tuesday, shares reclaimed a 99.50 cup-with-handle buy point, but then fell back.
Western Alliance Bancorp Earnings
Western Alliance reports Tuesday night. The California-based bank already provided some key Q1 metrics, including deposits and unrealized losses. But investors will want to hear about ongoing conditions. WAL stock rose 2.9% to 31.66 last week, but is still down sharply in 2023. As Warren Buffett said on Wednesday, bank deposits are probably safe, but it's not clear that bank stocks will be.
Charles Schwab reported better-than-expected Q1 earnings per share, while revenue was roughly in line. Assets and new assets topped views. SCHW stock rose slightly.
Asset custodian State Street missed on EPS and revenue. STT stock tumbled in premarket trade.
Bank of America, Goldman Sachs and several superregional banks are due this week.
Altogether, they'll provide a good picture about deposit and lending trends.
Market Rally Analysis
The stock market rally didn't have big weekly moves, but there were big daily and intraday swings. The major indexes staged big rallies on Thursday, bracketed by downside reversals on Wednesday and Friday.
Indeed, the Nasdaq composite fell every day but Thursday, and still eked out a weekly gain. The S&P 500 and Dow Jones hit two-month highs Friday before retreating, with the Dow up for a fourth straight week.
The major indexes aren't far from 2023 highs, but they aren't that far from undercutting their 50-day lines either.
Meanwhile, the Invesco S&P 500 Equal Weight ETF, which doesn't give more weight to megacaps such as Apple or Tesla stock, rallied from the 200-day line, but hit resistance several times at the 50-day.
Over the past week, markets became more concerned about recession risks, especially on Wednesday news that Fed staff predicted a "mild recession" back at the March policy meeting. But despite those concerns, and generally improving inflation data, the odds of a May rate hike actually increased to 80% on Friday.
Recession and Fed rate hikes are not a great combination for stocks. So the market rally showed resilience this past week. And, despite the volatility, the Nasdaq and S&P 500 have forged de facto 3-weeks tight patterns, with their recent ranges, much like LULU stock.
Market breadth has improved somewhat in the past couple of weeks. But there weren't a lot of stocks flashing buy signals. And the market's downside reversals meant that some stocks that looked actionable quickly faded or reversed.
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What To Do Now
How exposed should investors be? It depends on what stocks you own. Some stocks flashing buy signals in the past few weeks have fared well, while others have been mixed or reversed lower.
The volatile market swings have made it tricky to add stocks recently. So perhaps it's a good thing that buying opportunities were relatively scarce on Thursday's big rally.
The macroeconomic picture remains in flux, while earnings season will be ramping up over the next few weeks. So more volatility is likely in the cards.
If the market does show some strength, and stocks flash buy signals, add exposure gradually. Be ready to take partial profits and exit losers. Remember: If you're quick to add exposure, you have to be ready to scale out just as fast.
Finding early entries and buying close to those buy points is still a smart strategy. So spend the weekend running screens and building up your watchlists.
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