President Joe Biden and House Republicans reached a tentative agreement Saturday night to raise the government’s debt limit. The debt ceiling deal will avoid the looming default on US sovereign debt, the good news for the US economy, and the continued rally in the stock market.
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Last week’s stock market rally was mixed but with a hopeful ending. Indexes were down strongly on Wednesday. But then the technology boomed nvidia (NVDA) jumped in very quickly, sending chips and AI toys. Meanwhile, signs of progress on the debt ceiling deal boosted markets on Friday. Still, the weekly move in general was mixed, with breadth at times surprisingly weak and a number of blue-chip stocks struggling.
Dow futures will open Sunday evening, along with S&P 500 futures and Nasdaq futures.
debt ceiling deal
After weeks of negotiations, Biden and House Speaker Kevin McCarthy sealed the debt-reduction deal in principle Saturday night. Several reports, citing sources, said the agreement includes an increase in the debt limit for two years and will keep non-veterans and non-defense discretionary spending constant with current levels over two years. It will also impose some new restrictions on some government aid.
“We still have a lot of work to do, but I think this is an agreement in principle that the American people deserve,” McCarthy told reporters.
McCarthy said he plans to vote in the House of Representatives on the legislation on Wednesday, which will likely face objections from right and left. Treasury Secretary Janet Yellen said the debt limit increase must come by June 5 to avert a US default.
Stocks to watch
Tesla (TSLA), Netflix (NFLX), Arista Networks (Anita), on semiconductors (on), netease (detention), Mobileye (MBLY), smart paper (fat), Aehr Test Systems (ahr) And Makison (MCKTrading takes place near the buy points.
Shares of ANET, Netflix, On Semiconductor, NetEase and Mobileye flashed on Friday. Tesla, Aehr Test, Smartsheet and MCK systems come close to being doable.
NVDA stock is running IBD Leaderboard. MBLY stock, Smartsheet are on file defect 50. Arista Networks was IBD Friday’s stock. SMAR stock was picked up on Thursday.
The video embedded in this article discusses weekly market action and analyzes Arista Networks, Smartsheet, and Tesla stocks.
Dow jones futures today
Dow Jones futures open at 6 p.m. ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
How will futures contracts react to a debt limit deal? A default would have been devastating, but markets have already rebounded somewhat on optimism that a compromise will be reached in due course.
US stock markets will be closed on Monday in observance of the Memorial Day holiday. But other exchanges around the world will be open. Dow futures will also be trading normally on Monday.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze actionable shares in the bullish stock market on IBD Live
Stock market rise
The stock market rally was struggling in the middle of the week on debt ceiling concerns, but it has bounced back as Nvidia unleashed an artificial intelligence revolution and default fears eased. However, the indicators closed mixed.
The Dow Jones Industrial Average fell 1% in trading last week. The S&P 500 rose 0.3%. The Nasdaq Composite jumped 2.5%. Close the Russell 2000 small cap flat.
The 10-year Treasury yield rose 13 basis points for the week to 3.82%, the highest point since early March. The odds of a Fed rate hike next month have jumped to 70%.
US crude oil futures rose 1.4% to $72.67 a barrel last week. Copper prices fell 1.3%, but rebounded from their lowest levels in 2023, and jumped 2.6% on Friday.
Exchange Traded Funds
Among the growth ETFs is iShares Expanding Technology and Software Sector Fund (IGV) down 3.4%, with small SMAR shares. VanEck Vectors Semiconductor Corporation (SMH) for a 10.55% gain with Nvidia which is the primary holding company and ON stock also in the ETF.
Reflecting more speculative stories, the ARK Innovation ETF (ARK)ark(up 1% last week and the ARK Genomics ETF)ARKG) 3%. Tesla stock is the number one stock ETF held by Ark Invest.
SPDR S&P Metals & Mining ETFs (XME) fell 2.9% in the past week to the lowest level in nine months. Global Infrastructure Development Fund X US (cradle) decreased by 0.8%. US Global Gates Foundation ETF (Planes) decreased by 1.25%. SPDR S&P Homebuilders ETF (XHB) fell 2% after hitting a 52-week high in the previous week. Energy Defined Fund SPDR ETF (xle) decreased by 1.1%. SPDR Health Care Sector Selection Fund (XLV) decreased by 2.9%. MCK stock is part of XLV.
SPDR Financial Selection Fund (45) fell 1.5%, dropping below the 50-day line. SPDR S&P Regional Banking ETF (Creates) rose by 2.75%, but hit resistance at the 50-day line
Top five Chinese stocks to watch now
Tesla stock
Tesla shares jumped 7.2 percent to 193.17 during the week, including 4.7 percent of heavy trading volume on Friday. The electric car giant has decisively cleared the 50-day line and is now approaching the 207.89 buy point, according to MarketSmith analysis. This buying point is for an eight-week cup bottom or a three-month double bottom consolidation. Either way, TSLA stock has been consolidating below its 200-day line all along. However, the 200 day line is now at the 200 level, below the buy point. So the breakout would be valid, with a decisive drop below the 200 day line as the place to exit.
Other stocks near buy points
NFLX stock jumped 5.5% to 378.88 Friday, clearing an alternate buy point of 375.97 from a double-bottomed base and reaching a 52-week high.
ANET stock rose more than 18% to 170.35 this week amid the artificial intelligence frenzy. Stocks jumped above the 50-day line and touched a trend line on Thursday, then jumped 9.1% on Friday to a record close, with huge volume in both sessions. Arista stock has now extended slightly from the 50-day early entry/trend line, but it is also close to the official buy point of 171.54. Ideally, the stocks would pause and form a ticker. ANET stock has recovered since its plunge on May 2 after management didn’t raise guidance enough to satisfy investors.
ON stock rebounded from its 50-day line on Thursday, then rose 5.6% on Friday to 86.62. The stock has broken the downtrend of a sharp handle, providing an early entry. The official overbought point is 87.17, which Onsemi briefly topped on Friday. Note that On Semiconductor stock has a history of breaking out but later returned to the old base. On Semiconductor is Tesla’s chip supplier.
AEHR fell 0.6% to 32.76 for the week, but found support at the 50-day line and rose strongly late in the week. It’s a fake handle that’s too low to be suitable, but investors can use 33.40 as an early entry. This is probably safer than waiting for a traditional breakout above 40.79. On semiconductors is Aehr Test Systems’ largest customer.
MBLY stock broke out with a weekly gain of 10.6% to 45.14, jumping back above the 50-day line. That provided a strong entry on Thursday and Friday morning, but Mobileye stock is now extending from that. It is close to entering the trend line near 46, with 47.04 another key level. The official buy point is 48.21. Ideally, the MBLY stock would pause and form a handle. Like ANET stock, Mobileye fell after earnings several weeks ago.
SMAR stock paused just below the 49.09 buy point from the bottom of the cup, next to another short consolidation. Smartsheet stock rose 2.2% to 47.86 for the week, with all the gains and more coming Friday. The work planning software maker has rebounded after strong results earlier this month from Monday.com (MNDY). Smartsheet’s dividend is due on June 7.
MCK stock fell 2.4% to 387.95 last week, near the top of the six-month consolidation. The drug distributor forged a handle with 401.53 POIs. McKesson stock is a defensive growth game. So if the risk-driven growth rally takes hold, McKesson could fall behind.
NTES stock rose 2.4% for the week, to 89.51. On Thursday, shares rebounded from the 200-day line after earnings. On Friday, NetEase stock retraced the 50-day streak, offering an early entry. The Chinese mobile game giant has a solid 95.09 PPO.
Tesla vs. BYD: EV Giants Vy for the Crown, But Which One is a Better Buy?
Market rally analysis
After a stunningly mixed Thursday session, Tech led again on Friday, but the advance was broader in scope. Optimism about the debt ceiling deal, after some jitters in the middle of the week, helped boost investor sentiment.
Still, this is the rise of a divided stock market. The Nasdaq is rising toward its August highs, with the Nasdaq 100 already in high gear. The Nasdaq 100 is 8.8% above the 50-day line, while the Nasdaq Composite is 6.8% above this level.
After the S&P 500 fell back to its sideways range in the middle of the week, it is right at the 2023 highs again.
But the Dow fell below the 50-day and 200-day lines last week, although it regained the 200-day line on Friday. The Russell 2000 pulled back from the 200-day line, although it erased losses and closed above the 50-day mark.
First Trust Nasdaq 100 Equal Weighted Mutual Fund (QQEW) increased by 1.6% during the week. On Friday, QQEW jumped 2.5%, reaching a 2023 high and surpassing its August peak. This was a sign of broader participation, at least among growth stocks.
Invesco S&P 500 Equal Weight Fund (RSP) fell 1.2% for the week, falling below all of its moving averages again even with a solid gain on Friday.
Within the AI and chip spaces, a slew of stocks posted huge weekly gains, and many ex-buy points are racing.
But market leadership elsewhere is narrow. A number of stocks and groups suffered significant losses in the middle of the week. Some bounce back, but others may need to be set up again.
A temporary debt cap deal is good news for the market rally, assuming it moves through Congress. But given that the market was holding or rallying until the default deadline in early June, the actual agreement to raise the debt limit may not spur significant additional gains.
Fed rate hike fears could now take center stage again. On the plus side, this coincided with relatively strong economic data, which eased recession fears.
It’s time to market with IBD’s ETF Market Strategy
What are you doing now
This past week offered some buying opportunities, though investors need to take advantage of them quickly. Also, the mixed market signals may have instilled some understandable caution.
This was a week when “fortune favors the bold,” but for the past few months, “predestination is the better part of courage” has been a wise course.
Ideally, a market rally will provide clear signals to be more or less aggressive. This has not been the case since early February.
Meanwhile, many AI and chip names raced into buy territory and haven’t looked back, but a number of other stocks executed clear sell signals or jerks.
Assuming the market rally makes more headway and more stock buying signals, you can add more exposure. But do it gradually. If this bullish trend continues, it won’t take long for it to become fully exposed. If this separate market takes Mr. Hyde’s turn, your losses will be kept to a minimum.
Turn your screens on this weekend. Big fluctuations over the past week could mean big changes to your watchlists. Come back on Tuesday alert, flexible and ready for action.
Read the big picture every day to stay in sync with market trend, leading stocks and sectors.
Please follow Ed Carson on Twitter at @tweet For stock market updates and more.
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