Dow Jones Futures: Stock Market Rally Reality Check; It’s Still A Bear Market

Dow Jones futures rose solidly Sunday night, along with S&P 500 futures and Nasdaq futures, after President Donald Trump cited “big progress” toward a China trade deal. A stock market rally attempt is underway, but it’s still a bear market for now. Still, be ready by watching top stocks such as Broadcom (AVGO), Salesforce.com (CRM), Starbucks (SBUX) and Merck (MRK). Steer clear of Apple (AAPL) and other broken-down former leaders. Apple stock has lost one-third of its value and needs serious repair.




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Dow Jones Futures Today

Dow Jones futures climbed 0.7% vs. fair value. S&P 500 futures advanced 0.6%. Nasdaq 100 futures popped 0.7%. Remember that Dow futures and other overnight action don’t necessarily translate in actual trading in the next regular stock market session. That’s been especially clear during the bear market

Dow Jones futures presage New Year’s Eve, the last stock market trading day of 2018. It’s also in the midst of a stock market rally attempt. A follow-through day could come as soon as this week to confirm the new market rally. But it hasn’t happened yet.

Trump Touts ‘Big Progress’ In China Trade Deal Talks

President Donald Trump tweeted Saturday that he had a “long and very good” phone call with Chinese President Xi Jinping, citing movement toward a “comprehensive” China trade deal.  The U.S. and China are working toward a trade deal, but Trump’s tweet could be “overstated,” a source told the Wall Street Journal. U.S.-China trade talks resume in Beijing in early January. The China trade war is a major wild card for the stock market and global economy heading into 2019. A positive outcome could be a big lift to global stock markets.

Separately, the partial government shutdown is in its second week, with no signs of a compromise on border wall funding.

Stock Market Rally: 2 Days Isn’t A Bull Market

Two up days, a mixed day and positive Dow futures are not a bull market. The stock market had to bounce at some point. The S&P 500 index fell 1.5% or more for four straight days through Christmas Eve. The prior two times the benchmark gauge had done that, it rallied at least 5% the following session. On the day after Christmas, the S&P 500 index rallied 5%, its best gain since March 2009.

Most of the greatest one-day gains come in stock market corrections or a bear market. Those are often bear traps to lure investors back in before the stock market correction tumbles to new lows.

Where Is The Stock Market?

Last week’s two days of stock market gains wiped out … two days of stock market losses. Forget the 50-day or 200-day moving averages, the Dow Jones, S&P 500 index and Nasdaq all hit resistance at the 10-day line Friday. None have closed above that short-term line since early December. The major stock market averages have struggled to hold above the 10-day since early October, when the bear market got underway.

Will Big Money Confirm Stock Market Rally?

Will mutual funds and other big institutions put serious money into the stock market? That’s what it’ll take to trigger a follow-through day to confirm the new stock market rally. Then you want to see the major indexes and leading continue to gain ground, especially because the last two confirmed stock market rallies fizzled almost immediately.

Follow The Major Indexes And Top Stocks

Pay close attention to the major averages and leading stocks. Read the Stock Market Today and The Big Picture to stay in sync with the market. A follow-through day could come any time. You have to be ready to change on a dime.

A large number of top stocks are near potential buy points or close to being close. There are a slew of software names, including Salesforce stock, Atlassian (TEAM), ServiceNow (NOW), Workday (WDAY) and more. Some payment stocks, notably PayPal (PYPL) are acting well, along with a few chipmakers such as Broadcom stock as well as restaurants such as Chipotle Mexican Grill (CMG) and Starbucks stock. Don’t forget drug and medtechs, including Merck stock, the top Dow Jones performer in 2018.

You’ll find many of them in the IBD 50 and other IBD stock lists, as well as in a variety of IBD articles, including some at the bottom of this piece. During a stock market correction, IBD serves as a watch list scout, providing screens and stories of top stocks and sectors.

Leaderboard is IBD’s premium service featuring detailed annotated charts of a select group of top stocks in or near buy zones. Starbucks stock is on IBD Leaderboard, while Broadcom stock is on Leaderboard’s watch list.

Don’t Buy Early Or Too Fast

Several of those top stocks setting up have run up sharply since Christmas. But if the stock market turns south again, these would-be leaders might give their recent gains in a flash, and perhaps tumble from there.

Remember that Apple stock looked good through Nov. 1. But after a weak holiday outlook that night, Apple stock melted down. Apple stock has been the worst Dow Jones performer in the fourth quarter and a big reason why the stock market correction became a bear market on the Nasdaq and S&P 500 index.

So wait for a confirmed stock market rally and for a top stock to clear a proper entry point before buying.

Even when there is a follow through, you don’t have to race in with huge positions immediately. You might consider making modest purchases until the new stock market rally provides further confirmation.

Don’t Go Bottom Feeding

You might think that Apple stock, the FANG stocks and other former big winners such as Nvidia (NVDA) “have” to bounce back. Maybe they will, maybe they won’t. And if they do, how quickly will they recover?

Apple stock did rebound last week but didn’t do anything special. Its relative strength line is still near lows.

One way to play Apple stock, FANGs and other big techs while minimizing company-specific risk is via an ETF like the Invesco QQQ Trust (QQQ), which tracks the Nasdaq 100 index. Apple stock, Amazon.com (AMZN) and other big Nasdaq techs are big weights in the Nasdaq 100.

Stock Market Rises On An Escalator

Stock market corrections and bear markets fall like an elevator, while the stock market rallies on a escalator. So when a stock market rally truly takes hold, it could take a long time to get back to old highs. The early 2018 stock market correction — not a bear market — took months to get back to old highs. The Dow Jones only hit a new high on Sept. 20 — the same day that that the S&P 500 hit its 2018 closing high.

YOU ALSO MIGHT LIKE:

Stock Market Forecast For 2019: Seven Key Trends

Here Are 5 IBD 50 Stocks Setting Up As Market Tries To Rally

These 5 Tech Companies Strut Rising Relative Strength Amid Bear Market

Top Stocks To Buy Today? Not Quite, But These 5 Are Building Bases

Dow Jones Futures: This Often Happens After A Sharp Stock Market Correction

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