Dow Jones futures rose modestly late Monday, along with S&P 500 futures and Nasdaq futures, as House Speaker Nancy Pelosi “narrowed differences” in stimulus deal talks with Treasury Secretary Steven Mnuchin. In Monday’s session, the stock market rally reversed morning gains to fall sharply as stimulus deal hopes turned to doubts.
The Nasdaq composite fell for a fifth straight session after a strong run since late September, with Monday’s loss the biggest yet. However, the recent retreat has allowed leading stocks to work on handles, offering lower buy points. Apple stock and JD.com (JD) completed handles on their cup bases Monday, joining the likes of Shopify (SHOP) and Advanced Micro Devices (AMD) that already forged handles. However, the Apple (AAPL) handle has flaws.
Microsoft stock, PayPal (PYPL), Adobe (ADBE), Nvidia (NVDA) and Teladoc Health (TDOC) are set to have handles after Tuesday’s session, with Tesla (TSLA) stock and several others on track for handles at Wednesday’s close.
Tesla earnings are on tap late Wednesday.
After the close, electronics design software maker Cadence Design Systems (CDNS) reported better-than-expected Q3 results, with earnings and sales growth accelerating for a third straight quarter. Cadence Design stock initially rose, nearing recent buy points, but then erased overnight gains.
Dow Jones giant Intel (INTC) agreed to sell its Nand memory unit to Korea memory giant SK Hynix for $9 billion. Reports that the deal was close gave modest lifts to Intel stock in Monday’s session as well as memory play Micron Technology (MU). Western Digital (WDC) jumped.
JD.com stock, Microsoft, Adobe, Nvidia, Tesla and PayPal are on IBD Leaderboard. Shopify stock, Apple and PayPal are on SwingTrader. Microsoft and Adobe stock are on IBD Long-Term Leaders. AMD, Nvidia, Microsoft, Adobe, Cadence Design Systems and PayPal stock are on the IBD 50.
Stimulus Deal Talks
House Speaker Pelosi and Treasury Secretary Mnuchin met Monday afternoon, with further stimulus deal talks set for Tuesday. Pelosi spokesman Drew Hamill said on Twitter that the two sites “continued to narrow their differences.”
Earlier, Pelosi wrote to House Democrats that key differences remain on a final stimulus deal.
On Sunday, Pelosi set a stimulus deal deadline for Tuesday, saying otherwise it’ll have to wait until after the Nov. 3 Election Day. But she expressed optimism a deal could be reached. House Democrats favor a $2.2 trillion relief bill, while President Donald Trump says he’s willing to go higher than his latest offer of $1.8 trillion. Trump claims he could convince Senate Republicans, who are working on a $500 billion aid bill.
Dow Jones Futures Today
Dow Jones futures rose 0.5% vs. fair value, even with IBM (IBM) a drag as the Dow giant reported yet another quarterly sales decline. S&P 500 futures climbed 0.6%. Nasdaq 100 futures advanced 0.7%, with Apple, Tesla and many other big techs recouping a portion of Monday’s losses.
That’s especially true in such a headline-driven market, where a few positive or negative words on stimulus talks can trigger big moves in Dow Jones futures or regular trading.
Coronavirus cases worldwide reached 40.63 million. Covid-19 deaths topped 1.12 million.
Coronavirus cases in the U.S. have hit 8.45 million, with deaths above 225,000.
Coronavirus cases are rising sharply in the U.S. and especially Europe. Spain has topped one million cases with France not too far behind. In Europe, coronavirus restrictions have ramped up significantly.
On the upside, there is hope for positive final-stage coronavirus vaccine data from Pfizer (PFE) and partner BioNTech (BNTX) by the end of October. That could be a big catalyst for stocks, up or down, depending on the news.
On Monday, Pfizer said its Phase 2/3 trial of its coronavirus vaccine has enrolled 39,863 participants, with 34,601 already receiving a second dose. Moderna (MRNA) said Friday that 29,521 participants have been enrolled in its Phase three trial, with 24,496 getting a second dose.
Other vaccine candidates may offer at least initial late-stage results by early 2021.
Stock Market Rally Monday
U.S. Stock Market Today Overview
Last Update: 4:00 PM ET 10/19/2020
The stock market rally opened strong but reversed lower as stimulus deal hopes turned to doubts without any real news during the session.
The Dow Jones Industrial Average fell 1.4% in Monday’s stock market trading. The S&P 500 index sank 1.6%. The Nasdaq composite retreated 1.65%. All three indexes are now testing their 21-day moving averages.
Apple Stock Forges Handle
Not coincidentally, many big-cap tech stocks also have or are forming handles.
A handle offers a lower buy point — 10 cents above the top of the handle. A handle needs at least five days on a daily chart or one week to form, but can run over several weeks. The handle’s midpoint must be above the midpoint of the base. It must be flat to downward sloping, ideally in light volume.
The goal is to shake out weak holders, not see a big money exodus.
Apple stock sank 2.55% to 115.98. The iPhone maker now has a 5-day handle, offering a 125.49 buy point. But shares fell just enough intraday so that the midpoint of the handle is 1.5 cents below the midpoint of its base. That means there is more overhead resistance above the handle than is ideal. Also, AAPL stock fell below its 50-day moving average. So, while investors can still use 125.49 as a buy point, there are flaws.
JD.com stock dipped 1.1% to 80.61. Its newly forged handle offers an 85.49 buy point, according to MarketSmith analysis.
Those join AMD and Shopify stock, which finished handles last week. AMD fell 1.4%, closing slightly below its 50-day line. Shopify stock edged up 0.2%.
Microsoft, Tesla Stock Close To New Handles
Microsoft fell 2.5%, Adobe 1.5%, Nvidia 2.3% and PayPal 2.15%. Teladoc stock climbed 1.1%. All wrapped the fourth day of handles.
Tesla stock sank 2%, the third day of its handle. If it can stay in its recent range or slightly lower, the electric-car specialist will have a handle as of Wednesday’s close, just ahead of earnings.
Buying ahead of earnings is highly risky.
Many of the stocks mentioned in this article have earnings due in the next two weeks, with Apple, Microsoft and Shopify among those next week.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) retreated 1.5%. The iShares Expanded Tech-Software Sector ETF (IGV) sank 0.9%, even with Microsoft and Adobe stock as major holdings. The VanEck Vectors Semiconductor ETF (SMH) dipped 0.5%, with Intel, Micron and AMD stock notable components.
Stock Market Analysis
Monday’s sell-off wasn’t great to see on its own, but didn’t really change much for the stock market rally. We won’t know for a few days or weeks if the recent stock market pullback is just a positive pause or the start of a more serious retreat.
In the movies, the hero or heroine faces obstacles along the way, but always comes through at the end. But this is real life — or at least a gritty stimulation — where bulls don’t always prevail.
The major indexes still look OK — though ideally they would find support here, at their 21-day lines — while Monday’s retreat provided more of a shakeout for leaders. That’s especially true for stocks such as Nvidia, which hadn’t pulled back much through Friday but hit a two-week intraday low on Monday.
Keep in mind that just because a stock has formed a handle doesn’t mean it’ll break out and advance successfully. If the Nasdaq composite continues to pull back and heads below its 50-day line, few of these big-cap handles will pay off.
Stimulus deal news or sentiment is likely to move markets again on Tuesday, which is just two weeks from Election Day. With coronavirus headwinds and earnings season picking up, the stock market rally could see whipsaw action in the near term.
Wait For It …
It’s still a good idea to wait for the stock market rally to break above its short-term resistance before substantially adding to your overall exposure. If and when the Nasdaq powers above its handle, several tech giants likely will also break out around the same time, offering many buying opportunities.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
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