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Dow Jones Futures: Market Rally Underway, But Wait For This Signal

By ED CARSON

Dow Jones futures were little changed Monday morning, while S&P 500 futures and Nasdaq futures retreated slightly. A new stock market rally attempt got underway late last week, closing off lows Thursday and surging higher on Friday. But the major indexes still fell sharply for the week.

Shanghai will be opening up supermarkets and other physical stores in phases starting Monday, as Covid cases continue to fall. Hopes for an end to China's lockdowns helped buoy markets on Friday. But Chinese economic data released Monday was weaker than expected.

Investors should wait to see if the market rally continues to build momentum and stages a follow-through day to confirm the new uptrend.

Chevron and fertilizer leader CF Industries are around early entries, while Albemarle and Broadcom have a little more work to do. Merck didn't participate in Friday's relief rally, but closed up for the week and in a buy zone.

Meanwhile, Tesla stock and Twitter will remain in focus. Tesla rebounded on Friday, but still had a tough week. Twitter stock sold off last week, especially on Friday as Tesla CEO Elon Musk said the deal was "temporarily on hold."

MRK stock and CF are on SwingTrader. CF stock and AVGO stock are on the IBD 50. CF, Merck and CVX stock are on the IBD Big Cap 20. CF Industries was Friday's IBD Stock Of The Day.

The video embedded in this article discussed a volatile market week and analyzed Chevron, CF Industries and Albemarle stock.

In other news, McDonald's will sell its Russian operations, after previously suspending them due to Russia's Ukraine invasion.

JetBlue launched a hostile bid of $30 a share for Spirit Airlines, with the possibility of $33 via a friendly deal. Spirit Air, which has accepted a takeover by rival ultra-low cost carrier Frontier for $21.66 in cash and stock, rejected a recent JetBlue offer, citing the low odds that it would pass regulatory muster. SAVE stock leapt 15% to above 19.

Dow Jones Futures Today

Dow Jones futures edged higher vs. fair value, erasing modest morning losses. S&P 500 futures fell 0.2% and Nasdaq 100 futures lost 0.3%.

The 10-year Treasury yield dipped 1 basis point to 2.92%. Crude oil prices fell slightly.

China's April retail sales plunged 11.1% vs. a year earlier, nearly twice as bad as economists expected. Industrial production fell 2.9% vs. views for a slight decline.

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 Attempt

The stock market sold off hard, with the major indexes hitting 52-week lows before a big recovery from Thursday's lows. A nascent stock market rally attempt is underway.

The Dow Jones Industrial Average still fell 2.1% in last week's stock market trading. The S&P 500 index sank 2.4%. The Nasdaq composite retreated 2.8%. The small-cap Russell 2000 gave up 2.5%.

The 10-year Treasury yield tumbled 19 basis points last week to 2.93%, even with Friday's 11 basis-point surge. The 10-year Treasury yield hit 3.17% on Monday.

U.S. crude oil futures edged up 0.7% for the week to $110.49 a barrel, helped by Friday's 4.1% jump.

There's growing hope that the Chinese government will ease lockdowns in Shanghai as Covid cases decline That would be good news for the stock market, but especially for commodities such as crude oil and copper.

ETFs

Among the best ETFs, the Innovator IBD 50 ETF slumped 4% last week, while the Innovator IBD Breakout Opportunities ETF gave up 1.9%. The iShares Expanded Tech-Software Sector ETF also retreated 1.9%. The VanEck Vectors Semiconductor ETF recovered to dip just 0.2%, with AVGO stock a notable component.

SPDR S&P Metals & Mining ETF sold off 7.8% last week. The Global X U.S. Infrastructure Development ETF skidded 3.4%. U.S. Global Jets ETF descended 6.2%. SPDR S&P Homebuilders ETF edged down 0.1%. The Energy Select SPDR ETF lost 2.6%, with CVX stock a major holding. The Financial Select SPDR ETF declined 3.5%. The Health Care Select Sector SPDR Fund lost 0.9%. MRK stock is a key XLV component.

Reflecting more-speculative story stocks, ARK Innovation ETF closed down 4.45% last week and ARK Genomics ETF 1,2%, but roared back from massive losses late in the week. Tesla stock is the No. 1 holding across Ark Invest's ETFs.

Best Chinese Stocks: Shanghai Lockdowns To End Soon?

Stocks To Watch

Chevron stock fell 1.6% to 167.90 last week, but rebounded after Monday's 6.7% tumble, closing above its 50-day line. CVX stock has a flat base with a 174.76 buy point. Investors could use a bounce off the 50-day line as an early entry, perhaps using the May 6 high of 170.97 as a specific trigger. The relative strength line is at highs, reflecting Chevron stock's outperformance vs. the S&P 500 index.

CF stock popped 4% to 103.85 last week, staging a big upside reversal after plunging 9% on Monday. On Friday, the fertilizer maker rebounded above its 50-day line and crossed a trendline, offering an early entry. But buying in the current market adds to risk.

Merck stock fell 0.5% on Friday, sitting out the big market rebound. But the drug giant rose 2.3% to 90.39 for the week. Notably, MRK stock cleared an 89.58 cup-with-handle buy point.

ALB stock slumped 5.6% to 228.02 last week, but found support at its 50-day line on Thursday and reclaimed its 200-day line on Friday. Lithium giant Albemarle is in a consolidation going back nearly six months with an emerging buy point of 291.58. But investors could use 243.28, just above the prior week's post-earnings high, as an early entry. The 248 level also has been a key resistance area. Sociedad Química y Minera looks even better, on the cusp of a trendline early entry and a 50-day line bounce. But SQM, which produces fertilizers as well as lithium, has earnings on Wednesday.

AVGO stock climbed 1.4% to 588.24 last week, finding support at its 200-day line and coming up toward its 50-day. Broadcom has a cup-with-handle base with a 645.41 buy point, according to MarketSmith analysis. But a move above the 50-day line would coincide with breaking a downtrend in the large-ish handle, offering an early entry. The RS line for AVGO stock is already at a new high.

Tesla And Twitter Stock

Tesla stock popped 5.7% to 769.59 on Friday, continuing to bounce after hitting a 2022 low of 680 intraday Thursday. But shares skidded 11.1% for the week. TSLA stock needs a lot of repair time, with the 50- and 200-day lines among the hurdles.

Tesla stock has been pressured by the sharp market correction as well as Shanghai plant production shutdowns. The EV giant reportedly has pushed back plans to restore full Shanghai production by another week, to May 23.

But another factor has been Elon Musk's Twitter takeover plans. Musk is relying on a lot of financing backed by his TSLA stock holdings, which is more concerning as Tesla share prices decline. However, he has worked to get other investors to join him.

Amid Tesla Shanghai Woes, This Giant Is Seizing The EV Crown

Twitter Stock

But will Musk go ahead with the Twitter deal? Investors have had their doubts all along. On Friday, Musk said the deal was "temporarily on hold," though he later said he was "still committed" to the acquisition. Musk cited a Twitter report on fake accounts for his "hold," but the social network has given those figures for years. Plus, Musk cited spam accounts as one of the reasons for a Twitter takeover.

Musk could decide to pay a $1 breakup fee to walk away. Or, he could try to renegotiate the $54.20-a-share price substantially lower. If there's no deal, TWTR stock could tumble well below 40.

Twitter stock tumbled 9.7% to 40.70 on Friday, gapping below its 50-day line. Shares plunged 18.3% for the week. That's a long way from the TWTR stock takeover price. It also means that anyone who bought TWTR stock since Musk belatedly disclosed a sizable Twitter stake is underwater.

Over the weekend, Musk continued to post negative tweets on Twitter. He also said Twitter's legal team had accused him of violating a nondisclosure agreement as part of the takeover deal.

TWTR stock fell more than 2% early Monday.

Market Rally Analysis

The stock market had a long overdue rebound on Friday, with huge price gains on the major indexes. But it was just one day. The sharp drop in volume on both the Nasdaq and NYSE suggests a lot of Friday's action was short covering rather than big institutions stepping in.

Despite the market's big gains from Thursday's intraday lows, the major indexes still fell sharply for the week, hitting 52-week lows. The major indexes are below their 10-day moving averages, with the 21-day and 50-day lines quite a way off.

Friday marked day two of a market rally attempt for all the major indexes. The Nasdaq closed fractionally higher on Thursday. The S&P 500 and Dow Jones declined, but closed high enough in their ranges to qualify as "pink" rally days. In a few days, investors could look for a follow-through day on one or more of the major indexes. A follow-through day requires a strong price gain in higher volume than in the prior session.

Beaten-down stocks led the market for a second straight session, which is not surprising. But these names are nowhere close to being actionable.

Commodity plays such as Chevron and CF stock are among the best-positioned right now. EV battery play ALB stock and chipmaker Broadcom could be actionable a few days from now, perhaps as an actual follow-through day occurs.

A few drugmakers such as Merck stock and Eli Lilly are in position, but will these defensive growth stocks take part? On the flip side, if the market continues to struggle, Big Pharma will likely hold up better than most stocks.

Time The Market With IBD's ETF Market Strategy

What To Do Now

If you are an especially aggressive trader, you could have played Friday's big bounce. A good option would have been a broad market ETF. But anyone jumping in quickly has to be ready to scale out even faster.

But Friday was just one good day. Even if you count Thursday's afternoon's bounce, the market has been rising for little more than one session amid relentless selling since early April amid a market correction going back to start of 2022 or earlier.

There's nothing wrong with waiting for a follow-through day. Even if we get an FTD, investors shouldn't ramp up exposure quickly.

Build up your watchlists this weekend, looking for stocks with strong relative strength and setting up in bases or pulling back to key support.

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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Dive Deeper:
Dow Jones Futures Extend Stock Market Sell-Off; This Should Worry Investors
The stock market tumbled Wednesday on a hot inflation report. A lack of investor fear suggests no market bottom yet.
Dow Jones Rallies; Twitter Plunges After Elon Musk Says Deal 'On Hold'
The Dow Jones Industrial Average rallied 250 points Friday. Twitter plunged after Elon Musk tweeted the deal is "temporarily on…
Dow Jones Futures Jump; TWTR Stock Crashes, Pares Losses On Elon Musk's Twitter Deal Tweets
Futures are rising. Will this bounce stick? TWTR stock initially crashed as Tesla CEO Elon Musk put the Twitter deal…
Stock Market Rallies As Tech Leads Sectors; Twitter Plunges
The stock market rallied Friday as tech, energy and consumer discretionary stocks led a recovery. Twitter shares fell.
One subscription that gives you access to news from hundreds of sites
Dow Jones Futures Jump As Stock Market Rally Attempt Continues; Musk-Twitter Deal Still Happening?
Dow Jones futures were higher Tuesday, as the rally attempt continues. Elon Musk suggested a Twitter deal could come at…
Dow Jones Cuts Losses After New Inflation Data; Disney Tumbles On Earnings
The Dow Jones Industrial Average dropped after inflation data Thursday, as the market correction worsens. Disney tumbled on earnings results.
Get all your news in one place