Dow Jones Futures: Facebook, Tesla, Stock Market Correction, Avoid Investing Blind Spots

Dow Jones futures rose solidly late Monday, along with S&P 500 futures and Nasdaq futures. The stock market correction shows no letup, with the Dow Jones, S&P 500 index and Nasdaq composite reversing lower in wild action yet again Monday. Investors can’t afford to have blind spots to changes in market direction, especially when a stock market correction takes hold. Also keep your eyes and mind open to stocks’ changing fortunes, from recent Facebook (FB) woes to Lululemon Athletica (LULU), Microsoft (MSFT) and Ulta Beauty (ULTA) revivals and big Tesla (TSLA) swings.


Dow Jones Futures Today

Dow Jones futures rose 0.6% vs. fair value. S&P 500 futures climbed 0.6%. Nasdaq 100 futures rallied 0.7%. Remember that action in Dow futures, Facebook stock and elsewhere doesn’t necessarily translate into actual trading in the next regular session. That’s especially true in the current stock market correction, which has volatile moves during regular trading and extended sessions.

Stock Market Correction

Most stocks rise in a market uptrend. But most fall in a stock market correction. This simple fact is critical to successful investing, especially in individual stocks Also, one good day does not confirm a market bottom. Most of history’s best one-day percentage gains in the Dow Jones and other averages have come in stock market corrections or bear markets. Keep in mind that the S&P 500 index and Nasdaq haven’t had back-to-back gains in October.

Wait for a follow-through day to confirm a new uptrend before considering purchases.

Don’t necessarily assume that the old winners will lead when the stock market correction ends. Right now FANG stocks like Facebook and many other tech names are reeling, while several top retailers and restaurants are near record highs.

IBD’S TAKE:Want to take advantage of stock market rallies while sidestepping stock market corrections? Consider IBD’s ETF Market Strategy.

Over time, the overall stock market will rebound. Long-term investors in a diversified ETF or mutual fund should consider adding holdings to lower cost average.

Facebook Stock

“Past performance is no guarantee of future success.” That’s investing boilerplate, but it’s also true. Just because a stock has been a big longtime winner, that doesn’t mean it’s destined for further big gains.

Shares of Facebook sold off in March due to the Cambridge Analytica data-privacy scandal. The stock’s RS line had already been lagging slightly for months. Facebook stock then staged a big rally on hopes that the privacy scandal, Russian interference and other issues would not have a lasting impact. But that big price move came in light volume, suggesting a lack of institutional support.

The stock plunged 19% on July 27 after Q2 earnings as Facebook predicted a big growth slowdown and higher costs.

Facebook stock made a brief foray back above 200-day line, but then stumbled back and kept retreating. Facebook fell 2.3% on Monday, hitting a fresh 18-month low.

Shares could bounce back, but how far and how quickly? Investors likely will have better alternatives in the meantime.

Facebook earnings are due late Tuesday. Analysts expect an 8% EPS drop vs. a year earlier.

Meanwhile, the other FANG internet giants — (AMZN), Netflix (NFLX) and Google parent Alphabet (GOOGL) — have already reported earnings. Those stocks have tumbled through their 200-day lines and continued to slide Monday.

Tesla Stock

Tesla bulls and bears tend to have blinders on when it comes to the electric-vehicle maker. Depending on your point of view, Tesla stock should be at $3,000 or $0.

After months of chaos, Tesla delivered a big third-quarter profit last week, defying views for another loss. Shares skyrocketed 27% last week. Tesla stock rose 1.2% on Monday as the auto sector rallied on hopes for a China car tax cut.

Perhaps Tesla is finally turning the corner. Short-seller Citron thinks so, going long on Tesla stock last week. On the other hand, it’s still unclear if Tesla earnings can be sustained.

Let the market sift through that information. The Tesla stock chart reflects the collective knowledge and hopes and fears of investors. Tesla stock has rebounded sharply, but it needs to get closer to its August peak before investors can start taking it too seriously. Tesla stock is working on a 387.56 cup-base buy point. The RS line is reaching short-term highs but is in a long-term downtrend.

Microsoft Stock

Microsoft stock’s RS line was stagnant for years, with its legacy software business tied to the shrinking PC market. Then in early 2014, Microsoft named Satya Nadella as CEO. He quickly dumped the Nokia mobile-phone business and began a push into cloud computing. Microsoft stock broke out in late 2015, even though Nadella’s changes hadn’t yet filtered down to the overall top and bottom line. Then in July 2016, shares broke out again.

Microsoft stock hasn’t been below its 200-day since then. The RS line, which had been edging higher in an uneven fashion, rose at a faster, more consistent pace. Growth picked up as well, a trend that’s continued. Earnings growth jumped to 36% in the latest quarter, with revenue growth accelerating for the last three quarters.

Microsoft stock is below its 50-day line, and retreated 2.9% on Monday, approaching its 200-day. It’s still one of several top Dow stocks with RS lines at or near record highs. But with the stock market correction continuing to tear through growth stocks, there’s no guarantee that Microsoft will avoid breaking down.

Lululemon Stock

Lululemon stock went sideways from early 2012 to early 2018. The RS line trended lower. But shares of the yogawear maker began to rebound from mid-2017 as e-commerce and overall growth improved. Lululemon’s earnings growth has accelerated for the past four quarters, with sales gains picking up for the last five.

Lululemon stock has been on a huge run, soaring 163% from its June 2017 low, even with shares pulling back in the stock market correction. Lulu shares rose 0.8% to 135.88 Monday as retail stocks outperformed.

Lululemon Athletica also was part of a sector move, with the broader retailer sector reviving from late 2017 after a long slide. Tax cuts and a stronger economy, including improving wage gains, have fueled consumer spending.

Ulta Beauty Stock

After a three-year run, Ulta Beauty stock peaked in mid-2017 and then struggled until early 2018.

Unlike Lululemon Athletica and many other retailers, Ulta Beauty stock didn’t really rebound until this spring. Shares then consolidated again for several months before breaking out at the end of August. Now Ulta stock is setting up again in a flat base with a 290.40 buy point.

Shares rose 1.3% to 278.50 Monday after finding support at the 50-day line last week.

In terms of fundamentals, Ulta Beauty bulls and management might well quote LL Cool J: “Don’t call it a comeback. I’ve been here for years. I’m rocking my peers.”

Ulta’s earnings and sales growth remained strong even as the stock corrected sharply in late 2017. EPS growth has accelerated for the past two quarters. However, sales growth has slowed in the last two periods, with that latest quarter’s 15% gain the smallest in more than four years.


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Originally posted 2019-09-19 23:23:53.


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