Dow Jones futures rose slightly Thursday night, along with S&P 500 futures and Nasdaq futures. The stock market rally was deeply divided Thursday, with techs running higher while many real economy sectors suffered significant damage.
XAdobe (ADBE) earnings headlined after-hours action, providing a positive read on software as that broad sector heats up. ADBE stock rose modestly overnight.
Adobe is one of five big techs trading just above or below buy points, along with Microsoft stock, Amazon.com (AMZN), Google parent Alphabet (GOOGL) and PayPal (PYPL).
Microsoft (MSFT) is nearing a buy point as the MSFT stock chart quickly improves. So is Amazon. Both are trying to catch up to Google stock, which nudged back into a buy zone Thursday.
With these tech titans improving and software heating up, the big-cap Nasdaq 100 hit a record high Thursday. The big-cap Nasdaq 100 includes Amazon stock, Google, Microsoft and Adobe as well as a somewhat-improving Apple (AAPL). Nvidia (NVDA), Advanced Micro Devices (AMD), DocuSign (DOCU), Atlassian (TEAM) and PYPL stock were among the many notable Nasdaq 100 winners Thursday.
Buying stocks that are "early to rise" in a sector trend is important.
While techs did well, it was a rough day for a variety of reopening plays. Financials plunged as the 10-year Treasury yield wiped out Wednesday's gains from the Federal Reserve meeting. Commodity plays, including miners, fertilizer and even oil stocks, sold off along with underlying commodity prices.
Adobe Earnings
Adobe earnings rose 24% per share and revenue climbed 23%, both beating views though growth slowed from the prior quarter. The digital media and marketing software firm also guided higher.
Adobe stock climbed nearly 3% to 566 in overnight trade. Shares rose 1.5% on Thursday to 551.36, still in range from a 536.98 buy point in a consolidation going back to early September, according to MarketSmith analysis. That buy range ends at 563.72. An earlier, perhaps better entry for ADBE stock was 525.54, when shares cleared a mid-April peak.
Adobe, Microsoft, PayPal and Google stock are on IBD Leaderboard and IBD Long-Term Leaders. Nvidia stock and DocuSign also are on Leaderboard, while TEAM is a Long-Term Leader.
Dow Jones Futures Today
Dow Jones futures edged higher vs. fair value. S&P 500 futures climbed 0.1%. Nasdaq 100 futures rose 0.2%, with ADBE stock offering a slim boost.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
Stock Market Rally Thursday
The stock market rally was deeply split. The Dow Jones Industrial Average fell 0.6% in Thursday's stock market trading. The S&P 500 index closed just below break-even. The Nasdaq composite rose 0.9%. The small-cap Russell 2000 sank 1.2%.
The 10-year Treasury yield fell 6 basis points to 1.51% after climbing 7 basis points on Wednesday. The 10-year yield got as low as 1.47% intraday Thursday.
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Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 0.3%, while the Innovator IBD Breakout Opportunities ETF (BOUT) fell 1.4%. The iShares Expanded Tech-Software Sector ETF (IGV) jumped 1.7%. Adobe stock and Microsoft are major IGV components. The VanEck Vectors Semiconductor ETF (SMH) gained 1.1%, with key holding NVDA stock and AMD helping.
SPDR S&P Metals & Mining ETF (XME) crashed 5.5%, tumbling through its 50-day line. The Global X U.S. Infrastructure Development ETF (PAVE) slumped 2.7%. U.S. Global Jets ETF (JETS) skidded 1.5%. SPDR S&P Homebuilders ETF (XHB) dipped 0.6%. The Financial Select Sector SPDR ETF (XLF) slumped 2.9%, closing below its 50-day line for the first time since late January.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) soared 3.4% and ARK Genomics ETF (ARKG) 2.5%. ARKK moved back above its 50-day and 200-day lines, rejoining ARKG.
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Microsoft Stock
Microsoft stock rose 1.4% to 260.90 on Thursday, closing in on a 263.29 buy point from a shallow cup base, part of a base-on-base pattern or even a base-on-base-on-base.
With the S&P 500 pausing in recent days, the relative strength line for MSFT stock is moving toward its 2021 highs. At 2.8% above its 10-week line, investors could buy Microsoft stock as a Long-Term Leader already, though they could wait for an official breakout.
A number of other software names have already broken out in the last couple of weeks, including Adobe stock. In that vein, Microsoft stock could be seen as a software name that, if not late, certainly isn't early to that sector run. But Microsoft is arguably as much a cloud-computing services play as it is software, while also being tech megacap. So MSFT stock isn't always in sync with software names.
Amazon Stock
Speaking of tech megacaps with a heavy cloud-computing exposure, Amazon stock advanced 2.2% to 3,489.24. That's just below a 3,554.10 buy point from a cup base starting at the end of April. AMZN stock really has been consolidating since at least early September.
The RS line for Amazon stock is closing in on its consolidation highs, but is well off its 2021 peak and last year's all-time highs. But the trend has been improving.
Google Stock
Google stock edged up 0.8% to 2,434.87, once again just nudging past a 2,431.48 flat-base buy point. At 3.7% above the 10-week line, Google stock doesn't look extended as a Long-Term Leader entry.
The RS line is at record highs.
PayPal Stock
PayPal stock rose 3.5% to 278.11, just above a 277.96 early entry. The official buy point for PYPL stock is 309.24.
Volume was above average Thursday, a positive sign. PayPal stock has been rising over the past month on below-average trade.
The RS line for PYPL stock is almost at a two-month high, but still well below record levels.
Market Rally Analysis
The stock market rally, after months in which the Nasdaq lagged the real economy names, suddenly is a tech-led affair, along with many medicals. While the Nasdaq composite looks to join the Nasdaq 100 in new-high ground, the Dow Jones is below its 50-day line. The Russell 2000 is once again testing that level. The S&P 500, split between tech and non-tech components, is holding near highs.
Software is leading the charge, with Adobe stock among several breakouts over the past week or so. But make sure to buy right. Some look extended, either from buy points or running straight from the bottom. Some stocks, such as Shopify (SHOP) or CrowdStrike (CRWD) look extended from early entries and are racing up toward official buy points. Handles would be very constructive, but SHOP stock and CRWD haven't shown any inclination to pause over several days.
Chipmakers are doing well, with Nvidia stock increasingly extended while rival AMD stock popped above its 200-day line, showing signs of life. Several chip gear makers are pausing near buy points.
Tech titans are also starting to perk up, with the aforementioned Microsoft and Amazon stock trying to follow Google and Facebook (FB). Apple stock is trying to perk up, but still looks like a laggard among that quintet and techs in general.
But tech's gain is the real economy's pain. Mining and fertilizer plays, already showing serious weakness, are now breaking down. So are many steelmakers and other materials plays. Energy stocks, at least for one day, were caught up in the selling as well. Those financials that showed some early entries Wednesday? They sold off with Treasury yields.
Of course, if copper prices, corn futures or Treasury yields rebound, various sectors could rebound. But many of the stock charts are heavily damaged and need time to repair.
A split market rally, even one led by tech, seems unstable. In 2020, CAN SLIM investors largely focused on red-hot tech names, while the Nasdaq led the way. But it was a broad stock market rally, with "real economy" names having big runs too.
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Early To Rise, Early To Bed
Sector rotation makes it even more important to buy the "early to rise" stocks — the initial leaders from a sector upswing — when they flash early entries or other buy signals. If, say, software ends up having a four-week run, you want to play that trend quickly, buying the leaders clearing buy points or early entries. If you wait several weeks, buying a relative laggard or a leader that's extended, the risks of a pullback are higher.
Likewise, investors may want to put a trade "early to bed" as well. That can include cutting losses short, taking partial profits on the way up, or setting strict rules for exiting the position.
If you have a stock that achieves a sizeable gain in the current market, you can give it a little more slack. But Caterpillar (CAT) and Freeport-McMoRan (FCX) flashed significant long-term sell signals over the past week or two.
It's definitely a time to be engaged and nimble. Keep a fresh watchlist to spot sector trends quickly and identify early entries on leaders. Pay attention to stock, sector and market action to scale out.
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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