Dow Jones futures will open Sunday, along with S&P 500 futures and Nasdaq futures. The stock market rally offered some mixed signals last week. The major indexes fell slightly, but market internals improved somewhat while a number of leading stocks flashed buy signals.
Amazon.com (AMZN) was a big loser Friday, offering some key earnings lessons for investors. Roku (ROKU), Square (SQ) and Datadog (DDOG) are trading around buy points. But with earnings on tap, investors have big decisions to make.
Meanwhile, STLD stock is in a buy zone, with Steel Dynamics (STLD) earnings in the rear window.
The video embedded in this article analyzes Amazon stock, Roku and Steel Dynamics.
China’s Economy Cools
China’s official manufacturing index fell to 50.4 in July from 50.9 in June, the weakest reading since February 2020 and below views for 50.8. The export orders subindex fell further below the break-even 50 level. The nonmanufacturing index dipped 0.2 point to 53.3, in line with estimates.
The report comes amid high raw material costs and extreme weather in parts of the country. It also comes amid a China crackdown vs. many industries, notably for-profit schools as well as internet and other data-centric companies. That’s hit China stocks on the mainland, Hong Kong and in New York.
Dow Jones Futures Today
Dow Jones futures will open at 6 p.m. ET, along with S&P 500 futures and Nasdaq 100 futures.
Coronavirus cases worldwide reached 198.84 million. Covid-19 deaths topped 4.23 million.
Coronavirus cases in the U.S. have hit 35.74 million, with deaths above 629,000.
New U.S. cases hit 99,470 on Friday, surging over the last few weeks and the highest since Feb. 12. The Delta variant is much-more infectious, affecting many people who have been vaccinated. But vaccinations provide strong protection against serious illness, hospitalization and deaths.
Coronavirus vaccinations are rising significantly again, with some of the biggest gains in states with low immunization rates.
Stock Market Rally
The stock market rally lost ground on the major indexes but small caps and several sector ETFs advanced.
The Dow Jones Industrial Average and S&P 500 index dipped 0.4% in last week’s stock market trading. The Nasdaq composite retreated 1.1%. The small-cap Russell 2000 rose 0.7%, but hit resistance near its 50-day line.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.25% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) dipped 0.6%. The iShares Expanded Tech-Software Sector ETF (IGV) sank 1.1%. The VanEck Vectors Semiconductor ETF (SMH) gained 2.3%, with AMD (AMD), Qualcomm (QCOM) and KLA (KLAC) all earnings winners.
SPDR S&P Metals & Mining ETF (XME) leapt 7% while the Global X U.S. Infrastructure Development ETF (PAVE) gained 2.4%. U.S. Global Jets ETF (JETS) dipped 0.5% while the SPDR S&P Homebuilders ETF (XHB) advanced 1.5%. The Energy Select SPDR ETF (XLE) and the Financial Select SPDR ETF (XLF) were up 1.8% and 0.8%, respectively.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) fell 2% and ARK Genomics ETF (ARKG) lost 1.5%. ARKK dipped back below its 200-day line on Friday. ARKG closed below its 50-day line, which is below the 200-day. Roku stock and Square are both top-five holdings across the ARK Invest ETFs.
Amazon Stock Lessons
Amazon stock sold off Friday after sales and sales guidance came in light. Shares fell 7.6% to 3,327.59 on Friday, gapping far below the 3,524.96 buy point and below the 50-day line. AMZN stock skidded 9% for the week. Even if it didn’t trigger the 7%-8% sell rule for some investors, that still flashed some strong sell signals.
This is why IBD generally suggests having a cushion heading into earnings. How large depends on your investing style, the size of your position and your conviction in the stock.
Meanwhile, Amazon’s report also highlights the importance of paying attention to big earnings reports related to your holdings, especially if your stocks haven’t reported yet.
Amazon’s report is a bad sign for other e-commerce plays. Etsy (ETSY) plunged 7.8% on Friday and 12% for the week. EBay (EBAY) lost just over 7% for the day and week. Shopify (SHOP), which already beat views earlier in the week, fell a modest 1.6% on Friday, but slumped 8.7% for the week.
Roku stock fell 4.7% on Friday and 9.6% for the week, closing at 428.31. below a 463.09 cup-with-handle buy point cleared a week earlier, according to MarketSmith analysis. The streaming media player is trying to find support at its 21-day moving average but has fallen back to an early entry as it broke the downtrend in its handle.
Anyone who bought as Roku stock cleared the traditional buy point is down at least 7.5%, triggering the 7%-8% automatic sell rule. Anyone who bought at the early entry has seen a double-digit gain erased, a strong sell signal as well.
Investors who bought off the 10-week line in late July around 391, or previously at resistance around 397, do still have a modest gain.
So current Roku stock investors have a decision to make, especially if they’re flat to down.
Other investors can watch, and wait, to see if there’s a post-earnings buying opportunity.
Square stock rebounded from its 50-day line on July 19, then raced up 11% for that week, clearing a 254.88 handle buy point. But this past week, SQ stock lost 6.3% to 247.26, with half of that decline coming on Friday.
Once again, recent SQ stock buyers have a decision to make, with Square earnings due Thursday night.
One possible tactic is to use an earnings options strategy. A Square earnings options strategy was discussed in this week’s Earnings Preview article. But investors could use that strategy for Roku and other upcoming earnings reports.
Investors could view 267.87 as a new handle entry.
DDOG stock swung up and down this past week, ultimately retreating 0.5% to 110.70 for Friday and the week. Datadog stock is still above a 110.34 buy point in a cup-with-handle base, but only by a fraction.
Datadog earnings are on tap Thursday night. It’s still possible DDOG stock will build a bigger cushion, letting investors keep at least a partial position. But you don’t want to head into results with a loss.
Steel Dynamics Stock
Steel Dynamics stock is a different story. Earnings are out of the way, taking that huge risk off the table. STLD stock rebounded from the low of the base on strong earnings. On Thursday, it cleared a double-bottom buy point of 63.28 amid strong results from several steelmakers. STLD stock fell slightly on Friday but remains in buy range.
Market Rally Analysis
The major indexes closed modestly lower last week after touching record highs. A lot of that had to do with the megacap techs. Apple (AAPL) and Microsoft (MSFT) fell slightly on earnings while Facebook (FB) retreated solidly and Amazon stock tumbled. The one exception was Google parent Alphabet (GOOGL), which rose slightly after pulling back from Wednesday’s highs.
More stocks participated in the rally, with housing and steel plays among the new leaders.
There were some clear earnings winners and losers, with reports spurring new buying opportunities.
Overall, the market rally had a pretty good week. It doesn’t look so close to extended. The Nasdaq, finding support just above its 21-day moving average, is only 2.9% above its 50-day line. The Nasdaq 100 is 4.4% above its 50-day vs. 6.7% a week earlier. Market breadth improved, a little. It’s not great but at least it’s going in the right direction. And the number of buying opportunities and more-diverse leadership are good news for active investors.
What To Do Now
Investors could have modestly boosted exposure last week, with some new buys perhaps partially offset by some sales before or after earnings.
The past week has shown the importance of having a strategy heading into earnings. Make sure you have a cushion.
There are still dozens of top stocks on tap next week so know the earnings dates of your holdings. With many big names out of the way, you don’t have to be quite as aware of rivals’ earnings dates.
But be ready to take advantage of top stocks breaking out on earnings or other news. Several recent breakouts quickly got extended. So within a broader watchlist have a “ready” list of stocks near buy points. Use alerts, such as in MarketSmith, so you don’t miss breakouts.
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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