Dow Jones Futures: As Stock Market Rally Tests Limits, Don’t Buy These 5 Hot Stocks Now


Dow Jones futures rose modestly late Thursday, along with S&P 500 futures and Nasdaq futures. The stock market rally hit fresh highs Thursday, with the Nasdaq composite hitting the top of its channel. That gives an extra reason to avoid buying Apple (AAPL), Tesla (TSLA), Advanced Micro Devices (AMD), Alibaba (BABA) and Luckin Coffee (LK) right now.

Apple stock, Tesla stock, AMD stock, Alibaba stock and Luckin Coffee stock all have had big recent runs and look great. Apple stock, Tesla stock and AMD stock are all IBD Leaderboard stocks, while Alibaba stock and Luckin Coffee stock are piping-hot Chinese stocks. But they are all greatly extended from proper buy points.

Meanwhile, Intuitive Surgical (ISRG) and Synnex (SNX) signaled bullish moves overnight on Q4 figures. Intuitive Surgical stock rallied in late trade, rebounding from its 10-week line. The robotic-surgical system maker reported strong Q4 revenue and procedures growth after the close. Synnex stock signaled a gap above above a three-weeks-tight pattern.

Dow Jones Futures Today

Dow Jones futures were 0.25% above fair value. S&P 500 futures advanced 0.2% while Nasdaq 100 futures climbed 0.3%. Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.

The December jobs report will likely swing Dow Jones futures when it comes out Friday morning at 8:30 a.m. ET.

The current stock market rally continued to power higher on Thursday.

The Dow Jones Industrial Average climbed 0.7%, moving to a record high. The S&P 500 index advanced 0.7% and the Nasdaq composite rose 0.8%, both hitting fresh all-time peaks. Apple stock rose 2.1%, boosting all the major indexes.

Growth stocks fared well. Among the best ETFs, the Innovator IBD 50 ETF (FFTY) jumped 1.25%. The iShares Expanded Tech-Software Sector ETF (IGV) climbed 0.95%, hitting yet another all-time high. The VanEck Vectors Semiconductor ETF (SMH) was up 0.6%, with AMD stock among the leaders.

Nasdaq Rally Hits Upper Channel

The Nasdaq composite on Thursday moved to at least the top of its bullish trading range that it's been in since early October. The Nasdaq 100, which includes Apple stock, AMD stock, Tesla stock and Intuitive Surgical stock, clearly moved above the top of its trading channel.

When the major indexes hit the top of their channels in late November and the start of 2020, they pulled back for a short period. The Nasdaq intraday was just over 6% above its 50-day line. That's slightly more than it was on Nov. 27 and Jan. 2. The stock market rally could ramp up and trade above the trading channel for a time, but that angle of ascent isn't sustainable for a lengthy period.

A pullback to the bottom of its channel, slightly below its 21-day moving average, would be normal. Investors shouldn't be shocked if the major indexes pull back to the 50-day line, which wouldn't necessarily mark the end of the stock market rally.

When the stock market rally does pull back, growth stocks like Apple stock and Tesla stock likely will retreat broadly as well.

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CAN SLIM Is Not Momentum Investing

CAN SLIM investing is often described as "momentum investing," because it emphasizes growth stocks. But momentum investing means piling into a stock that's running up, not worrying about where it is on its chart.

CAN SLIM investing means buying the right stock at the right time, when it's clearing resistance from a proper base or pullback, ideally in heavy volume. The buy point is when a stock is most likely to rise, and to rise quickly.

Buy a stock within 5% of the buy point, marked in light blue on Marketsmith charts. If you chase a stock beyond this 5% zone, you're vulnerable to a pullback. You might get shaken out of a stock that rebounds. Worse, you might hold a stock through a pullback, then watch it continue to fall for steep losses.

On the flip side, when a stock breaks out and then reverses below the buy point, that's a sign that something is wrong. Investors should always exit a stock if it falls 7%-8% below the buy point, but ideally you want to cut your losses earlier.

Apple, AMD, Alibaba, Tesla, Luckin Coffee Are Too Hot

Apple stock, AMD stock, Alibaba stock, Tesla stock and Luckin Coffee stock have been huge stock market rally winners over the last few weeks or months. All five hit intraday highs Thursday. So why not buy them now?

All are far, far extended from a proper buy point. Tesla stock reversed to close down 2.2% on Thursday. But it's still 14% above its 21-day line and 31% from its 50-day line. A pullback to those levels would not be a shock. Those who bought Tesla stock near the 361.30 buy point can weather a pullback. But this is not the place to start buying Tesla stock. Wait for a pullback to the 50-day/10-week line or a new base breakout.

Apple stock is up 40% from its 221.47 flat-base entry. It's also well extended from an early December test of its 10-week line.

Alibaba stock has rallied 18% from its 188.38 buy point.

AMD stock is 37% from its 35.65 cup-base entry. It's also modestly extended from a 41.89 three-weeks-tight.

Luckin Coffee stock is 63% from a 27.22 buy point, and up 142% above its Nov. 11 low of 18.30. It's far above a 33.58 entry from the world's wildest three-weeks-tight.

Could all these stocks keep running higher from here? Sure! They all have good stories to tell. But the risks of a pullback are high for Apple stock, Alibaba stock, Tesla stock, Luckin Coffee stock and AMD stock. The current stock market rally only raises the risks.


I hope you enjoyed today’s article.