The stock market rally has a wild two weeks, with record coronavirus cases and upbeat Covid vaccine news swinging sectors back and forth. But in many ways, the market is back where it was, with many tight weekly closes and growth stocks back in favor.
The Nasdaq composite has actually formed a three-weeks-tight pattern. So have Apple (AAPL) chipmakers Qorvo (QRVO) and Qualcomm (QCOM), along with marijuana stock Innovative Industrial Properties (IIPR).
Meanwhile, Apple stock, Microsoft (MSFT) and Amazon.com (AMZN) are looking tired. The megacaps were big winners during the coronavirus stock market rally from April-September. But lately they have struggled to keep pace with the broader indexes.
Coronavirus cases worldwide reached 58.41 million. Covid-19 deaths topped 1.38 million.
Coronavirus cases in the U.S. have hit 12.41 million, with deaths above 261,000.
The U.S. topped 200,000 cases for the first time on Friday. Hospitalizations are soaring, overloading many local hospital systems. With states and cities increasingly raising restrictions and social distancing increasing, the economic recovery could begin to stall out.
Pfizer (PFE) and BioNTech (BNTX) filed for FDA approval of their coronavirus vaccine. Moderna (MRNA), which released strong interim data on its Covid vaccine last Monday, will likely follow in days. An FDA advisory panel will meet in early December to discuss coronavirus vaccines, with FDA approval likely soon after.
Stock Market Rally Last Week
U.S. Stock Market Today Overview
Last Update: 4:06 PM ET 11/20/2020
The stock market rally had a mixed week for the major indexes. The Dow Jones Industrial Average fell 0.7% in last week’s stock market trading. The S&P 500 index retreated 0.8%. The Nasdaq composite edged up 0.2%.
Growth stocks fared well overall.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.9% last week. So did the iShares Expanded Tech-Software Sector ETF (IGV) and VanEck Vectors Semiconductor ETF (SMH). Microsoft stock is a major IGV holding.
A three-weeks tight is when a stock ends the week within 1%-1.5% of the prior week’s close, for two straight weeks. The buy point is 10 cents above the high point of the tight pattern. It’s a chance for add-on buys, but also new positions if the tight pattern is close to a prior base.
Qorvo stock fell less than 0.2% last week to 147.39, following a 0.2% rise the prior week. The three-weeks-tight is just above a prior, messy consolidation, consolidating following a jump on earnings. The buy point is 154.53. However, 151.31, just above last week’s high, also could be an early entry.
The relative strength line for Qorvo stock is just below all-time highs. The RS line, which tracks a stock’s performance vs. the S&P 500 index, is the blue line in the charts provided.
Qualcomm stock rose 1.2% last week to 146.03, ending near weekly lows. That followed 0.5% decline in the prior week. The tight entry is 153.43, according to MarketSmith analysis. Like Qorvo stock, QCOM stock consolidated tightly following a strong gain on earnings.
Both Qualcomm and Qorvo are Apple chipmakers and 5G plays. With 5G wireless taking off and the new 5G iPhone just launched, both chipmakers are in sweet spots.
Innovative Industrial Properties stock surged on election results, with more states legalizing marijuana and Joe Biden the apparent winner of the presidential race. Last week, IIPR stock dipped 0.3% to 151.95 after edging up a few cents in the prior week. The buy point is 165.09.
Innovative Industrial Properties is a REIT that owns properties for growing marijuana.
Not-So-Young Growth Stocks
There comes a point in life where you may have a steady workout routine, staying relatively fit, better than most. But when you have do something really strenuous — playing a long, intense basketball game, helping someone move, etc. — you can still do it. However, now you feel the effects for days.
That’s what it can be like for Apple, Microsoft and Amazon stock. These megacaps went on strong runs in 2020, with Microsoft stock outperforming the S&P 500 for years. But at some point these megacaps have to take a rest.
Apple stock fell 1.6% last week to 117.34 after rising 0.5% in the prior week. Shares are still above their 50-day moving average. But in the post-election stock market rally, Apple stock hasn’t broken trend lines or other aggressive entries.
On the other hand, AAPL stock is that far away from clearing recent resistance with a 122.09 entry or at 125.49. The official buy point is 138.08.
The RS line for Apple stock went on a strong run from January 2019 and finally peaked on Sept. 1. Since then it’s been going sideways.
Unlike Apple stock, Microsoft actually broke out briefly on Nov. 9, when the Pfizer coronavirus news came out, but then reversed lower to close just below its 50-day line on Nov. 10. Microsoft stock fell 2.8% last week, just below its 50-day line, after a 3.2% drop in the week prior.
Microsoft would seem to be well-positioned in the current volatile market, given its strong growth before and during the coronavirus pandemic.
But the RS line has been trending lower since early July, especially in the last two weeks. Long-Term Leaders like Microsoft can go through those stretches after long periods of outperformance.
Buying off the 50-day/10-week line can be a smart strategy for Long-Term Leaders, but investors might want to wait until MSFT stock clears very short-term resistance, with a 219.21 entry. A new handle has formed with a 228.22 buy point.
Amazon stock dipped 0.9% to 3,099.40 last week after a 5.5% tumble in the week before. Shares of the e-commerce and cloud giant have been below the 50-day line most of that stretch.
As with Microsoft stock, the RS line for AMZN stock has been falling since early July.
The official buy point is 3,552.35, though 3,496.34 would work. An early entry for Amazon stock could be 3366.90. An especially aggressive investor could draw a trend line from the latter two points to find an even-lower entry. But would you want to?
Stock Market Rotation
After a violent rotation out of stay-at-home stocks into “real economy” coronavirus vaccine stocks in the prior week, there was a general return to growth and even some pure Covid plays such as Zoom Video (ZM).
So, stock market rotation over? Maybe, but perhaps not for long.
Yes, investors are once again focusing on stay-at-home stocks with record coronavirus cases and restrictions intensifying. But if all goes according to plan, two coronavirus vaccines will be approved in just a few weeks, with perhaps two more by February. While vaccinations will take several months, at some point the pandemic will recede and the economy can fully recover.
As for real economy, coronavirus vaccine stock plays, Boeing (BA) closed well off highs, but still gained 6.7% last week. Fellow Dow Jones stocks Caterpillar (CAT) and JPMorgan Chase (JPM) edged higher after big gains in the prior week.
The ideal situation would be a broad-based stock market rally. Not only would that provide investors with more options to buy, but the market might be less-prone to big sector swings.
But, for now, the swing between stay-at-home stocks and coronavirus vaccine plays may continue for some time. Just as you don’t want to be overly concentrated in a particular group or sector, don’t be too weighted in one particular coronavirus investing theme.
Many stocks are doing great and are well extended. But aside from a few names like Qorvo and Qualcomm stock, there aren’t a lot of good setups right now. However, a few good days could bring more stocks into play, including Apple, Microsoft and even Amazon stock.
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.
YOU MAY ALSO LIKE: