Dow Jones futures tilted higher late Monday, along with S&P 500 futures and Nasdaq futures. The stock market rally had a rough session for growth names, including but definitely not limited to Tesla (TSLA), Square (SQ) and Nvidia stock.
XChip breakouts struggled with software names faltering around their 50-day line.
While the major indexes all remain near record highs, it's been a "hard penny" market, according to famed investor Mark Minervini on Monday's IBD Live. Even with the stock market rally trending higher, entering a Power Trend on Friday, it's been a tough environment for making slim gains.
A rising 10-year Treasury yield, a weaker Bitcoin price and bad news for Nvidia and Tesla stock specifically all weighed on tech stocks Monday. Coinbase (COIN) continued to consolidate following last week's much-hyped direct listing.
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Key Earnings
United Airlines (UAL), Steel Dynamics (STLD) and Dow Jones giant IBM (IBM) reported earnings after the close.
United Airlines reported a wider-than-expected loss and missed on revenue. UAL stock fell slightly in overnight trade. Shares fell 1.6% to 54.99 on Monday, testing their 50-day line. Airline and other travel stocks have retreated over the last few weeks after riding a "reopening" rally.
Steel Dynamics earnings topped forecasts. STLD stock edged lower in extended trade. Shares dipped 0.6% on Monday to 51.19. Intraday, Steel Dynamics stock hit 52.72, just clearing a four-weeks-tight pattern with a 52.69 buy point.
IBM earnings beat views while revenue edged higher, a rare year-over-year gain. Cloud revenue led the way. IBM stock rose modestly overnight, flirting with a possible breakout. Shares dipped 0.35% to 131.12 on Monday. IBM stock has been consolidating for a few weeks. Investors could view that as a handle to a 14-month consolidation, with 137.17 as the buy point. But the relative strength line has been in a downtrend since late 2011, highlighting IBM stock's long-term underperformance vs. the S&P 500 index.
Netflix Earnings Due
A number of earnings reports are due Tuesday, but the big feature event is Netflix (NFLX) after the close. Shares rose 1.45% to 554.44 on Monday. NFLX stock could have a tiny handle as of Tuesday's close with a 559.85 buy point. It already has a handle, barely, on a weekly chart.
Arguably NFLX stock is already at a trendline going back to its Jan. 20 peak, set after the Q4 earnings report.
Netflix stock fared well Monday, but its RS line is just above a 52-week low as shares have gone sideways for the past nine months.
Nvidia stock and Square are on IBD Leaderboard. Square stock is on the IBD 50.
Bitcoin Price Volatile, Coinbase IPO Consolidates
The Bitcoin price traded above $56,000 Monday evening. The cryptocurrency rebounded from a Saturday night low above $51,000 to hit $57,600 Monday morning, but it fell from above $61,000 Friday night. Bitcoin hit a record high of $64,899 early Wednesday, hours ahead of the Coinbase direct listing.
Coinbase stock fell 2.6% to 333 on Monday. It was the third straight inside day.
Coinbase stock had a reference price of 385 and quickly ran up to 429.54 in Wednesday's debut. But shares quickly reversed lower. By late afternoon, COIN stock undercut 350 and hasn't bounced back.
Wait for an IPO base to form. Perhaps there will be an early entry for aggressive traders, but a lot of people who bought COIN stock above 350 may want to exit.
Dow Jones Futures Today
Dow Jones futures rose 0.1% vs. fair value, with IBM stock offering a slim boost. S&P 500 futures and Nasdaq 100 futures were slightly above break-even.
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 reached 142.65 million. Covid-19 deaths topped 3.04 million.
Coronavirus cases in the U.S. have hit 32.46 million, with deaths above 581,000.
Stock Market Rally Monday
The stock market rally had a down session on the major indexes, but small caps and growth names had a tougher time.
The Dow Jones Industrial Average fell 0.4% in Monday's stock market trading. The S&P 500 index lost 0.5%. The Nasdaq composite sank 1%. The small-cap Russell 2000 retreated 1.2%.
The 10-year Treasury yield rose 3 basis points to 1.6%. The 10-year yield tumbled last week, though it rebounded somewhat on Friday.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) slumped 2.2%, while the Innovator IBD Breakout Opportunities ETF (BOUT) skidded 1.8%. The iShares Expanded Tech-Software Sector ETF (IGV) gave up 1.3%, though many growth names suffered bigger losses. The VanEck Vectors Semiconductor ETF (SMH) sold off 2.5%. Nvidia stock is a major component in SMH, but there was widespread weakness among chips.
SPDR S&P Metals & Mining ETF (XME) fell 1.3% and Global X U.S. Infrastructure Development ETF (PAVE) lost 0.55%. U.S. Global Jets ETF (JETS) descended 1.25%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) dropped 3.2% and ARK Genomics ETF (ARKG) 2.5%. Tesla stock is the No. 1 holding across ARK Investments' ETFs. Square stock is a top-five ARK holding. ARK Invest has bought up a lot of COIN stock since it came public.
Tesla Stock
Tesla stock fell 3.4% to 714.63, but closed in the upper half of its range after testing its 50-day and 21-day moving averages. On Saturday, two men died in a Model S crash in which neither was in the driver's seat, indicating that the Tesla was operating on Autopilot or Full-Self Driving.
After the close, Tesla CEO Elon Musk tweeted, "Data logs recovered so far show Autopilot was not enabled & this car did not purchase FSD." TSLA stock rose slightly overnight.
Bitcoin's sharp fall from Friday also likely weighed on Tesla, which invested $1.5 billion in the cryptocurrency earlier this year.
On the upside, Tesla stock testing key support successfully would be a positive sign. It could have a handle after Tuesday on a daily chart with a 780.89 buy point. A handle that shows up on a weekly chart would be even better, shaking out weak holders ahead of Tesla earnings next week.
Square Stock
Square stock tumbled 4.2% to 245.33, closing slightly above its 50-day.
SQ stock has now fallen in three of the last four sessions, but that's after rising for 10 straight days. As with Tesla, Square stock is likely falling in part due to the Bitcoin price drop. After Tuesday, SQ stock will have a handle on a daily chart with a 278.23 buy point. On a weekly chart, the handle is already there. But a handle is no guarantee of a breakout, or that the breakout will succeed.
Nvidia Stock
Nvidia stock fell 3.5% to 614.47, once again undercutting a 615 buy point from a cup base. The U.K. government said it was intervening into Nvidia's planned buy of U.K.-based wireless chip designer Arm Holdings. At minimum, that suggests a longer Nvidia-Arm approval process.
While NVDA stock has fallen in three of the last four days, volume has been much lighter in those retreats than during the last three up days.
Taiwan Semiconductor (TSM) sank 2.9%, falling further from its 50-day line with the RS line hitting a 2021 low. Micron Technology (MU) dropped 2.5%, below its 50-day line after hitting a 20-year high last week. Lam Research (LRCX), which reports later this week, sank 3.4% to 621.73, nearly retreating to a 603.70 buy point.
Market Rally Analysis
The Dow Jones and S&P 500 had been getting close to extended, so Monday's pullback looks perfectly normal, even healthy, for those two indexes. The Nasdaq composite lost more ground, but is still holding above its March highs and its 50-day line. The Russell 2000 suffered the biggest loss, sinking back below its 50-day line.
The stock market rally didn't suffer too much damage on the indexes, Russell 2000 excluded. However, many leading stocks had a difficult session.
Financials such as Goldman Sachs (GS) and Wells Fargo (WFC) held up, boosted by recovering Treasury yields, though they generally did not gain much ground. Cyclicals did OK. Rio Tinto (RIO) neared a buy point while lithium miner Albemarle (ALB) reclaimed its 50-day line and broke a downtrend.
Growth stocks that have been trying to come back, perhaps flashing early buy signals, took it on the chin. Tesla, Square as well as many software names, such as Twilio (TWLO), tested or undercut their 50-day lines. Even worse, chip names that actually broke out weeks ago suffered significant losses.
Now, maybe this is a final shakeout before growth stocks surge higher. But they may continue to weaken, or the overall stock market rally may struggle again.
What Investors Should Do Now
This was already a "hard penny" market, as Minervini says. Just as a stock breaks out or flashes an early buy signal, the sector would often rotate out of favor. Like Yoda fighting with a lightsaber, active investors have to work twice as hard to make pennies on the dollar, if they can even make that.
It's not an environment for being especially aggressive. While it's OK to be invested, holding onto long-term winners or stocks that you have a decent cushion on, there's not a compelling argument for ramping up exposure. Instead, investors should weed out laggards and losers, especially with earnings season ramping up.
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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