Dow Jones futures rose modestly Wednesday morning, along with S&P 500 futures and Nasdaq futures, buoyed by China markets. The stock market rally had a quiet Tuesday, though the major indexes nudged into record highs intraday. The Nasdaq still looks extended, among notable cautions. Lyft stock, Enphase Energy (ENPH), Match Group (MTCH) and Dow giant Cisco Systems (CSCO) were notable movers after hours.
Twitter earnings beat views along with Enphase stock, Rapid7, Lyft and Cisco Systems. Twitter stock rose 6% overnight and Lyft soared 13% after both closed somewhat extended from buy points. Enphase stock popped 7%, moving toward a buy point in a new base after a recent rebound from its 10-week line. RPD stock edged higher as it trades in a flat base. Cisco stock fell almost 5% on weak guidance after hitting a 52-week high on Monday.
Why This IBD Tool Simplifies The Search For Top Stocks
Meanwhile, online dating giant Match Group late Tuesday said it will pay $1.725 billion for Hyperconnect, a South Korean social media company that has video and audio chat apps. Match stock rose 2.4% overnight, signaling a move past a consolidation area starting on Dec. 17.
GM stock dipped Tuesday from Monday’s all-time highs.
Bitcoin Holds Gains, Tesla Stock Fades
The Bitcoin price jumped to $48,200 early Tuesday and was trading above $46,000 Wednesday morning, little changed vs. 24 hours earlier. Bitcoin spiked Monday on Tesla’s announcement that it bought $1.5 billion worth of the cryptocurrency.
Tesla stock dipped 1.6% on Tuesday, erasing Monday’s slim gain.
Nio, AI Stock Stand Out
Tesla’s China rival Nio jumped 6.4% to 62.84, a record close and decisively clearing a downward-sloping trend line in a new consolidation just above a prior base. By Tuesday’s close, Nio stock was slightly extended from that early entry but could have a new buy point at 67.09. On Monday, Nio stock reclaimed a prior buy point and peeked out past the trend line.
Recent IPO AI stock soared 12% to 168.92, surging past a 160.53 buy point from an IPO base. AI is slightly beyond the 5% chase zone, which extends to 168.56.
GameStop Stock Keeps Falling
Finally, the GameStop (GME) saga set a grim new milestone. On Jan. 27, GameStop stock closed 1,054% above its 50-day line, according to MarketSmith analysis. GME stock is now below its 50-day line. Shares fell 16% on Tuesday to 50.31. That’s 90% below the GME stock peak of 483 on Jan. 28.
Biden, Yellen Meet With CEOs
President Joe Biden, Vice President Kamala Harris and Treasury Secretary Janet Yellen met with major CEOs and business leaders. They included JPMorgan CEO Jamie Dimon and Walmart CEO Doug McMillon, who’s also chairman of the Business Roundtable. The business leaders expressed support for a sizable new stimulus package but signaled concerns about a minimum wage, especially at the current time. Biden is pushing for a $1.9 trillion stimulus plan, though he’s signaled he can accept tighter restrictions on direct checks of $1,400. The president also has hinted that a $15 minimum wage may not be part of a stimulus package if it comes via a budget reconciliation bill. Such legislation must be limited to tax-and-spend measures. Even so, the House legislation has a $15 minimum wage.
Tesla stock is on IBD Leaderboard. Nio stock is on SwingTrader.
Dow Jones Futures Today
Dow Jones futures rose 0.3% vs. fair value. S&P 500 futures were up 0.4%. Nasdaq 100 futures climbed 0.4%. Cisco stock is a Dow Jones, S&P 500 and Nasdaq 100 component.
Futures turned higher after the Shanghai exchange opened. The Shanghai composite jumped 1.4%, with Hong Kong’s Hang Seng index up 1.9%.
Alibaba (BABA) founder Jack Ma reportedly was seen playing golf after weeks of isolation amid a regulatory crackdown, broken only by an appearing in a video conference. Alibaba stock rose slightly.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Coronavirus cases worldwide reached 107.49 million. Covid-19 deaths topped 2.35 million.
Coronavirus cases in the U.S. have hit 27.79 million, with deaths above 479,000.
Stock Market Rally
The stock market rally didn’t see much movement on the major indexes, but they all hit new highs. The Nasdaq topped 14,000 for the first time. The tech-heavy index remains extended from the 50-day line.
The Dow Jones Industrial Average closed just below break-even in Tuesday’s stock market trading. The S&P 500 index dipped 0.1%. The Nasdaq composite edged up 0.1%.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) and the Innovator IBD Breakout Opportunities ETF (BOUT) rose 0.9%. The iShares Expanded Tech-Software Sector ETF (IGV) climbed 0.85%. The VanEck Vectors Semiconductor ETF (SMH) dipped 0.3%.
Market Rally Caution Flags
The stock market rally is at record highs while leading stocks are acting well. But there are a few caution flags.
The Nasdaq is now 7.9% above its 50-day moving average and 4% above its 21-day exponential moving average. When the Nasdaq is more than 6% above its 50-day line, the risks of a pullback increase. The more extended the index gets, the risks continue to rise, with greater odds of a significant pullback.
On Monday, the Nasdaq closed 8.1% above its 50-day line and 4.3% above its 21-day. On Jan. 25, just before a pullback, those figures were 8.2% and 4.1%, respectively. On Sept. 2, just before a correction, those figures were 11.6% and 6%. At the March 10, 2000 dot-com peak, the Nasdaq closed 17% above its 50-day and 7.8% above its 21-day.
So the Nasdaq could definitely keep running higher from here. What happens after that?
Ideally, the stock market rally could move sideways or pull back gradually for several weeks, letting the 50-day catch up without causing serious losses for investors.
Margin debt rose 34% in December vs. a year earlier. That’s a seven-year high, but below the 55% gain typically associated with tops before a bear market. However, call options exploded 437% in January vs. a year earlier. Along with the rise of leveraged ETFs, it’s clear that investor leverage is waving at least a yellow flag.
The huge gains in several hot stocks also raise some eyebrows about froth in the overall market.
Digital Turbine (APPS), EXP World (EXPI), Futu Holdings (FUTU) and Tilray (TLRY) are looking greatly extended and perhaps starting to show climax-type action. They could keep running or even go sideways, as Tesla stock has done after looking like a climax run in early January. Futu and Tilray stock jumped again Wednesday morning. But the risks of a sharp pullback are high. Investors should definitely have a game plan and exit strategy for these names.
There seems to be a strong desire for the next rocket, shrugging off the risks. GME stock and related Reddit plays are a clear example. Investors shouldn’t be jumping into an already-extended stock or asset with little care about what they are even buying. CAN SLIM investing is about buying the right stocks — with strong fundamentals and new products or services — at the right time, when the odds of success are highest.
The right time definitely includes the market, the M in CAN SLIM. It’s a confirmed stock market rally, so investors can still make new buys. But given the warning signs, they should be cautious about adding exposure and may want to consider taking some profits on extended stocks and cutting laggards loose.
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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