Dow Jones futures were flat Monday morning, while S&P 500 futures and Nasdaq futures fell slightly.
The stock market rally had a mixed week, but all the major indexes hit fresh highs at one point amid generally strong tech earnings. Treasury yields fell amid tame economic data, which bolstered expectations for another Fed rate cut on Dec. 18.
The Nasdaq led, with the 20,000 level looking like a magnet. But the tech-heavy composite is starting to look extended, while market sentiment is getting frothy.
Nvidia, Apple, Meta Platforms, Microsoft are all flashing buy signs.
However, Nvidia stock fell Monday morning as China launched a probe of the AI chip giant on anti-monopoly grounds.
Nvidia and Meta stock are on IBD Leaderboard. Meta also is on SwingTrader. Microsoft stock is on IBD Long-Term Leaders. Nvidia stock is on the IBD 50.
Dow Jones Futures Today
Dow Jones futures were just above fair value. S&P 500 futures lost about 0.1% and Nasdaq 100 futures declined 0.2%.
The 10-year Treasury yield rose to 4.18%. Crude oil futures rose more than 1%.
Bitcoin fell to above $98,000 after clearing the $100,000 level late last week.
Hong Kong's Hang Seng jumped 2.8% after China vowed "more proactive" fiscal policy and "moderately" easier monetary policy next year to boost consumption. That followed weaker-than-expected consumer prices in November, adding to economic fears.
Copper prices also popped on the China stimulus pledge.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
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Stock Market Rally
The stock market rally had a mixed week, but the Nasdaq and techs thrived.
The Dow Jones Industrial Average fell 0.6% in last week's stock market trading, despite hitting a fresh all-time peak on Wednesday. The S&P 500 index rose nearly 1% and the Nasdaq composite jumped 3.3%, both setting records on Friday. The small-cap Russell 2000 declined 1.1%.
The 10-year Treasury yield declined four basis points to 4.15%, hitting the lowest levels since late October.
U.S. crude oil futures fell 1.2% to $67.20 a barrel last week.
Nasdaq Nears 20,000 But Risks Rise
The Nasdaq composite is within 1% below the 20,000 level, one month after topping 19,000 for the first time. However, the Nasdaq is now 6.2% above its 50-day moving average. When the Nasdaq gets 5%-6% above the 50-day line the risks of a pullback start to rise.
The Nasdaq can get more extended, sometimes even topping 10% vs. the 50-day, though the odds of a pullback increase as well as the risks that the pullback would be significant.
Notably, the S&P 500 is not extended, only 3.7% above its 50-day. As the sector ETFs below show, techs are leading while many market sectors lost ground.
But sentiment indicators are also raising at least yellow flags. The Investors Intelligence Bulls vs. Bears survey has 62.9% of investment newsletters bullish in the latest reading, and that's before the past few days of market gains. Readings above 60% are a sign of excessive bullishness. It's also the highest reading of 2024, aside from two weeks in July around the summer market peak.
The CBOE Volatility Index, or VIX, hit its lowest reading since July 19. It was the market fear gauge's lowest close since July 12.
While extreme bullishness can signal a market top, that doesn't have to happen right away.
In another sign of market froth, "heat" stocks such as Palantir Technologies and AppLovin are becoming extremely extended from moving averages.
So investors should be watching the Nasdaq and sentiment indicators from here.
Palantir stock jumped early Monday, buoyed by an expanded pact with the U.S. Special Operations Command. AppLovin fell solidly after not being added to the S&P 500 index.
QQQ Now 21 Months Above Key Indicator; Is Its Run Ending?
ETFs
Among growth ETFs, the Innovator IBD 50 ETF rose 1.55% last week. The iShares Expanded Tech-Software Sector ETF leaped 5%, with Microsoft a major holding. The VanEck Vectors Semiconductor ETF gained 2.7%, with Nvidia stock the dominant component.
ARK Innovation ETF soared 8.5% last week and ARK Genomics ETF climbed 1.85%.
SPDR S&P Metals & Mining ETF plunged 4.8% last week. U.S. Global Jets ETF ascended 4.1%. SPDR S&P Homebuilders ETF gave up 3.1%. The Energy Select SPDR ETF tumbled 4.7% and the Health Care Select Sector SPDR Fund declined 2.1%. The Industrial Select Sector SPDR Fund retreated 2.4%
The Financial Select SPDR ETF shed 1.8%.
Time The Market With IBD's ETF Market Strategy
Nvidia Stock Falls On China Probe
Shares fell about 2% to under 140 early Monday, back below the 140.76 buy point and the 21-day line but still above the 50-day moving average. Nvidia stock rose 3% to 142.44 last week, rebounding from the 50-day to move back into buy range.
China has launched a probe into Nvidia on suspicion of anti-monopoly breaches, according to state media. Nvidia faces antitrust probes in the U.S. and Europe. Beijing also may be looking to retaliate against U.S. export curbs on advanced chip and chip-making equipment to China.
Other Megacaps In Buy Areas
Apple stock climbed 2.3% to 242.84 for the week, moving above a 237.49 buy point from a flat base next to another consolidation.
Meta stock jumped 8.6% to 623.77 clearing a 602.95 flat-base buy point, according to MarketSurge. The Facebook and Instagram parent rose 2.4% Friday as a federal court upheld a looming U.S. ban of TikTok. Meta also launched its latest large language model, Llama 3.3.
Microsoft stock gained 4.75% to 443.57, rebounding from essentially all its moving averages and later topping short-term highs of 438.50 and 441.85. Investors could use these various moves as a chance to buy MSFT stock from an early entry or as a Long-Term Leader. The official buy point is 468.35.
Bear in mind, if these megacaps take off — joining Amazon.com and Tesla that would likely push the Nasdaq to significantly extended.
Nvidia-backed AI Stock Surges. Why Massive Rally Poses Risks.
What To Do Now
The stock market rally is acting well, with tech and other growth plays leading the way.
Some buying opportunities remain. If you're fully invested, you might need to cut something to take a new position or add to a holding.
The market, or at least the Nasdaq, is starting to look stretched. It's not at the point where investors should do proactive selling for that reason alone, though it's a factor to consider as you mull whether to take profits in extended stocks.
An extended Nasdaq does raise the risks of new buys. If the composite pulls back, new breakouts or buying opportunities could fizzle. Meanwhile, many extremely extended hot stocks could suffer sharp losses.
Earnings season is well off its peak, but there's quality among the limited quantity.
Toll Brothers, Broadcom, Oracle, Costco, Ollie's Bargain Outlet and Adobe are key earnings reports this coming week, with Nvidia chipmaker Taiwan Semiconductor reporting monthly sales. All but Costco stock, which is extended, are trading near buy points or early entries.
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