Dow Jones futures will open Sunday evening, along with S&P 500 futures and Nasdaq futures. The stock market rally was hit from all directions last week, with the major indexes tumbling below key levels Friday on the new Omicron Covid variant, with crude oil prices and Treasury yields plunging. Coronavirus vaccine makers such as Moderna (MRNA), BioNTech (BNTX) and Pfizer (PFE) were big winners.
Is this the start of a significant market slide, the continuation of recent whipsaw action or will stocks quickly rebound? The current uncertainty makes it difficult to navigate the stock market rally. Investors should be playing more defense than offense until conditions clearly improve.
Li Auto earnings are due before Monday’s open. Later next week, Li Auto (LI) and Chinese EV startups Nio (NIO) and Xpeng (XPEV) are likely to release November delivery figures. China EV giant BYD Co. (BYDDF) may come slightly later, with Tesla (TSLA) China sales figures eventually following.
The video embedded in this article analyzed a pivotal market week and discussed PFE stock, Ovintiv (OVV) and Li Auto.
Dow Jones Futures Today
Dow Jones futures will open Sunday at 6 p.m. ET, along with S&P 500 futures and Nasdaq 100 futures. But Dow Jones and S&P 500 ETFs traded modestly lower after Friday’s market close, while Nasdaq futures fell slightly.
A new coronavirus variant with a large number of mutations, first detected in South Africa, is raising concerns. It’s unclear if the B.1.1529 Covid variant, dubbed the Omicron variant on Friday, is more deadly or infectious than prior strains, or whether vaccinations or prior Covid infection provide substantial protection. But health officials are worried. The World Health Organization noted that the Omicron variant appears to have a higher risk of reinfection for people who have already had Covid-19. The WHO declared it a “variant of concern,” the first such designation since the delta variant a year ago.
The U.S., U.K., European Union, Israel and Singapore have suspended flights or entry from southern Africa.
Coronavirus cases had already been ramping up worldwide for the past several weeks, notably in Europe. Austria began a lockdown in the past week.
Coronavirus cases worldwide reached 260.87 million. Covid-19 deaths topped 5.2 million.
Coronavirus cases in the U.S. have hit 49.05 million, with deaths above 799,000. U.S. cases, after picking up for a couple of weeks, appeared to be leveling off shortly before Thanksgiving. Will the holiday travel spur another upsurge in cases? Coronavirus deaths in the U.S. have continued to fall.
Coronavirus Vaccine Stocks
Pfizer and partner BioNTech, along with rival mRNA coronavirus vaccine maker Moderna, jumped on the Omicron Covid variant, also called Nu Covid. Pfizer also is benefitting from Merck (MRK) reporting even-lower efficacy from its antiviral Covid pill. A Pfizer Covid oral drug is much more effective.
PFE stock jumped 6.1% on Friday to 54, gapping above a 51.96 buy point, according to MarketSmith analysis. However, Pfizer stock has surged for six straight weeks off the bottom of its cup base. A pullback wouldn’t be a surprise.
MRNA stock gapped above its 50-day line, breaking a trend line with a 21% gain. BNTX stock, which cleared its 50-day line earlier in the week, soared 14%. Both Moderna stock and BioNTech could be deemed early entries. But investors might want to see more strength from Moderna and a post-gap up consolidation from BNTX stock.
Stock Market Rally
The stock market rally had a rough holiday-shortened week, with broad-based losses.
The Dow Jones Industrial Average gave up 2% in last week’s stock market trading, all driven by Friday’s 2.5% decline. The S&P 500 index shed 2.2%. The Nasdaq composite skidded 3.5%. The small-cap Russell 2000 tumbled 4.6%.
Crude oil futures plunged 13% on Friday. The 10-year Treasury yield lost 4 basis points to 1.49% for the week. But the benchmark yield dived 15 basis points Friday after nearly hitting a six-month high Wednesday intraday.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) plunged 5.9%, while the Innovator IBD Breakout Opportunities ETF (BOUT) gave up 3.5%. The iShares Expanded Tech-Software Sector ETF (IGV) slumped 5%. The VanEck Vectors Semiconductor ETF (SMH) retreated 4.1%.
SPDR S&P Metals & Mining ETF (XME) fell 3.2% and Global X U.S. Infrastructure Development ETF (PAVE) declined 2.1%. U.S. Global Jets ETF (JETS) tumbled 7%. SPDR S&P Homebuilders ETF (XHB) slid 2%. The Energy Select SPDR ETF (XLE) rose 1.3%, but tumbled 4.3% on Friday with many shale plays faring far worse. The Financial Select SPDR ETF (XLF) lost 1%, skidding 3.7% on Friday.
Li Auto Stocks
Li Auto is expected to narrow its per-share loss with Q3 revenue tripling. Li Auto stock is near possible entries, including an official 34.93 handle buy point.
Xpeng stock is holding above a 48.08 buy point and 50.50 alternative entry after surging on earnings in the past week. Tesla and BYD stock could be working on new consolidations, both closing Friday near their 21-day lines. Nio stock has fallen back below its 200-day line.
Market Rally Analysis
In the past week, the stock market rally started a major sell-off in highly valued growth stocks, especially software, while energy stocks and banks rebounded. The new Covid variant sent stocks sharply lower on Friday, especially oil and financials, as crude prices and Treasury yields tumbled. Travel stocks also were hard hit, while retailers extended a recent retreat. Coronavirus plays bounced, while software names held up relatively well.
The Nasdaq composite and S&P 500 gapped below their 21-day lines after both found support at that key level earlier in the week. The Dow Jones, which was up modestly through Wednesday, gapped below its 50-day line on Friday.
The Russell 2000 tumbled below its 50-day and 200-day moving averages. The small-cap index is a decent proxy for market breadth, which has weakened considerably. Losers trounced winners 4-to-1 on the Nasdaq Friday, and by 5-to-1 on the NYSE. The advance/decline lines have deteriorated in the past few weeks.
There’s a lot of uncertainty right now regarding the market rally and which sectors will lead and lag. A lot has to do with whether or not the Omicron Covid variant is substantially more infectious or deadly. That will inform governments’ decisions on travel bans and restrictions and whether or not people adjust their behavior once again. A major outbreak could trigger new government and business shutdowns, roiling supply chains once again and sending commodity prices on a longer slide. Perhaps all these fears are overdone, but that may not be apparent for some time.
The CBOE Volatility Index, or VIX, spiked 54% to 28.62, hitting a 10-month high. Extreme moves in the so-called market fear gauge could raise the odds of at least a short-term market bottom. But it doesn’t have to happen right away and it doesn’t have to last.
What To Do Now
The whipsaw, downside action in the major indexes, various sectors and leading stocks is not conducive to new buys. Sure, if the overall stock market rally or specific sectors rebound, buying now will likely turn out well. But with so much uncertainty regarding the new Covid variant, inflation, supply chains and more, the odds are not especially favorable.
It’s quite possible the oil, bank or travel stocks will try to rebound early next week, much as software stocks did on Wednesday. But that doesn’t mean the bounce will continue.
Investors should review their holdings and ditch losers. If you got caught out in Friday’s gap-down losses and didn’t act, don’t continue to freeze.
Take more of a defensive posture with all of your holdings and portfolio. Don’t necessarily be in a rush to sell everything, unless all your stocks are triggering losses.
When market conditions do shore up, whether it’s next week or next year, you want to be ready financially and mentally to take advantage.
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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