Dow Jones futures, S&P 500 Futures, and Nasdaq Futures will all open on Sunday evening. Moody's cut the U.S. sovereign rating to negative on Friday.
After Thursday's decline, the stock market rallied strongly on Friday. Major indexes cleared October highs. The market breadth remains weak but the leading stocks performed well. Many of them cleared buy points or set up.
After the initial market surge, it was software that led the chip sector.
On Friday, Nvidia (NVDA), Broadcom(AVGO), Taiwan Semiconductor(TSM), KLAC (KLAC), and Lam Research (LRCX), flashed Buy signals.
Investors may also consider MercadoLibre, Roku and Datadog as recent winners of earnings.
Investors need to be on the lookout for stocks that are preparing to rise and take advantage of these opportunities.
Nvidia and Datadog stock are on the IBD Leaderboard. Nvidia, Datadog, and MELI are all on the IBD 50. DDOG is listed on the IBD Big Cap 20. IBD Stock Of The Day was MercadoLibre on Friday.
This article includes a video that analyzes the TSM stock and MercadoLibre, as well as General Electric (GE).
Moody's Cuts U.S. Outlook
Moody's Investors Service lowered its outlook for the United States to negative on Friday night, citing high deficits in government budgets and political polarization. Moody's has reaffirmed its AAA rating for the U.S. government debt.
Moody's says that, in the context of rising interest rates and without effective fiscal policies to reduce government expenditures or increase revenue, it expects deficits "to remain very large."
A divided nation increases the risk that future governments won't tackle long-term problems.
A 45-day funding measure for the government expires on Nov. 17. The likelihood of a shutdown is still high.
Dow Jones Futures Today
Dow Jones futures will open at 6 pm ET on Sunday, along with S&P 500 and Nasdaq 100 futures. S&P 500 and Nasdaq futures will open at 6 p.m. ET on Sunday.
After Moody's negative U.S. Outlook, ETFs that track those futures showed a 0.2% decline for the Dow Jones as well as 0.1% drops for the S&P 500 & Nasdaq 100.
The yield on the 10-year Treasury note has risen slightly to 4.65%.
Keep in mind the overnight Dow Futures session.
Stock Market Rally
Stock market gains were solid on Friday, despite the fact that they snapped winning streaks in major indices over the past week.
Last week, the Dow Jones Industrial Average increased by 0.65%. S&P 500 index rose 1.3%. The Nasdaq composite rose 2.4% on Friday, just above 2%. All major indices rose above their October highs. This is another bullish sign.
The market breadth improved Friday, but it remains a concern going into the week.
The Russell 2000 small-cap index fell 3.15% in the past week, despite a 1.1%% increase on Friday.
The Invesco Equal Weight ETF for S&P 500 (RSP), gained 1.2% on Friday, but fell 0.6% overall.
First Trust Nasdaq 100 Equal Weighted Index ETF QQEW performed better. QQEW, while trailing the Nasdaq's 2.9% weekly increase, rose by 0.7% and moved above its 50-day closing Friday. A number of large-cap tech stocks outside the megacaps enjoyed a strong week.
The market leadership is strong. Tech leads the charge but leaders come from all sectors.
Bulls aren't interested in stopping, even if a longer rally could be beneficial.
The yield on the 10-year Treasury rose 7 basis points, to 4.63%. This was despite some large daily swings.
Last week, U.S. crude futures fell 4.15% from $77.17 to $77.17 per barrel. However, they did rebound late in the week
Datadog was included in the iShares Expanded Tech Software Sector ETF (IGV), which is a growth ETF. VanEck Vectors Semiconductor ETF SMH jumped by 5.2%. Nvidia is the largest holding in SMH. SMH's largest holding is Nvidia stock. Other major holdings include Broadcom, KLA, TSM, and LRCX.
Last week, SPDR S&P Metals & Mining ETF sank by 3.6% as metal prices fell. The SPDR S&P homebuilders ETF (XHB), which had risen by 2.1% on Friday, grew 0.1%. Energy Select SPDR Fund (XLE), which is a component of the SPDR Fund, fell 3.8%. The Health Care Select Sector SPDR Fund, (XLV), also dropped 0.9%. Industrial Select Sector SPDR Fund XLI gained 0.9%
The Financial Select SPDR ETF XLF edged up by 0.4%.
Chip Stocks In Buy Zones
Nvidia's stock price rose 7.4% in the past week, to 483.35. It cleared a double-bottom purchase point of 476.09 on Friday. The relative strength line reached a new record. The RS line (the blue line on the charts) tracks a stock’s performance compared to the S&P 500 Index.
Nvidia's earnings are due on Nov. 21 so you don't have much time to prepare. Microsoft (MSFT), meanwhile, will be announcing its latest AI advances at its Ignite event 2023 on Wednesday. There are rumors that Microsoft could even unveil its own AI processor to reduce its dependency on Nvidia.
Broadcom's stock jumped 8.5% to 957.52 in the past week. According to MarketSmith's analysis, the shares broke through resistance on Friday that dated back to May. The RS line of AVGO stock is also at a record high.
Lam Research's stock rose 8.1% to 685.43, clearing an entry of 665 from a double-bottomed base that looked awkward. KLA's stock climbed 6.9% to 534.25, topping a buy point of 520.19. LRCX and KLA stocks were among Friday's best performers in the S&P 500. Both stocks could be affected by the earnings report of Applied Materials (AMAT), due Nov. 16. AMAT also reached a new buy point on Friday.
TSM's stock rose 6.35% to 97.44 on Friday, a double normal value. It cleared its 200-day trendline, as well as a short-term peak. Taiwan Semiconductor announced Friday that October sales were up 15.7% from a year ago and 34.8% from September. This marks a turn-around after three quarters with declining revenue and earnings.
The giant foundry produces chips for Nvidia (AAPL), Broadcom (AAPL), Apple (AAPL), and others. It is also a major chip-equipment purchaser. Taiwan Semi sales probably helped to drive Friday's bullish movements by NVDA, Broadcom Lam Research, and KLA.
Second Chance for These Earnings Prize Winners
MELI's stock dropped 1% last week to 1,374.39 after a 15.6% gain the week before as the Latin American payments and e-commerce giant reported strong earnings. MercadoLibre's stock has a cup with handle base and a buy point of 1,398.15.
Roku's stock dropped 4.1% last week to 81.31, forming a weekly handle at an 86.40 purchase point. Shares of the streaming platform soared 50% in the previous week from a low point that dated back to five months. Roku continues to lose money, but revenue growth has accelerated for a third consecutive quarter.
The Datadog stock soared 26% this week to 103.65 on the back of strong earnings and guidance. Since Tuesday's spike, shares have been consolidating. DDOG is now above a 102-point buy point, after a double-bottomed base. Investors may use the Tuesday high of 104.43 to enter. This could turn into a handle within a few weeks.
What to Do Now
Stocks are bouncing back quickly after Thursday's decline. Leading stocks are performing well and growing.
As long as both the market and investors' positions are performing well, they can continue to add exposure.
This weekend, work on your watchlists. Since the follow-through days of Nov. 1-2, many stocks have extended while others are establishing.
It is important to be prepared for new leaders or when other points of purchase are cleared.
The earnings season has passed its peak, but is still very active. In addition to October retail sales and inflation data, investors will get the latest economic reports this week.
The Big Picture is a daily read to keep up with market trends, leading stocks and sectors.