Dow Jones futures rose modestly Monday morning, along with S&P 500 futures and Nasdaq futures, with new Trump tariffs offsetting positive Chinese factory data. Apple (AAPL) is consolidating at a profit-taking zone. Do you believe Apple stock will be a big winner? That could give you confidence to hold. But Amazon stock, Microsoft (MSFT), Shopify stock and Zscaler (ZS) show why one key sell rule is important to follow.
Big institutions often will step in to buy top stocks at the 10-week moving average. But when a stock plunges below this key level in heavy volume, it can signal the end of the run.
Meanwhile, Apple AirPods were hot sellers over Thanksgiving weekend. Overall online and mobile sales continue to boom, good news for Amazon.com (AMZN) and e-commerce software specialist Shopify (SHOP). Trips to malls fell on Black Friday, but surging click-and-collect orders show that some traditional retailers like Target (TGT) are finding ways to thrive.
Dow Jones Futures Today
Dow Jones futures rose 0.2% vs. fair value, after climbing as much as 0.5%. S&P 500 futures were up 0.2%. Nasdaq 100 futures advanced 0.2%. Premarket action in Dow futures doesn’t necessarily translate into actual trading in the next regular stock market session.
Dow Jones futures rose on upbeat Chinese factory data, paring gains on new Trump tariffs vs. Brazil and Argentina.
China manufacturing activity expanded for the first time in seven months, according to an official gauge for November. It rose 0.9 point to 50.2, above the break-even 50 level and beating forecasts. The nonmanufacturing index popped 1.6 points to 54.4. Meanwhile, the private Caixin survey showed China manufacturing expanding at a slightly faster pace, up 0.1 point to 51.8.
The ISM U.S. manufacturing index is due at 10 a.m. ET Monday, with the ISM services gauge out Wednesday and the November jobs report on Friday.
Meanwhile, early Monday President Donald Trump tweeted he was reimposing steel and aluminum tariffs vs. Brazil and Argentina, accusing them of “massive” currency depreciation, hurting U.S. farmers.
Current Stock Market Rally
The current stock market rally continues to look great. Even with Friday’s modest pullback, the Dow Jones Industrial Average rose 0.6% last week. The S&P 500 index climbed 1% and the Nasdaq composite 1.7%.
Growth stocks had a stellar week. Among the best ETFs, the Innovator IBD 50 ETF (FFTY) climbed 2.3% and the iShares Expanded Tech-Software Sector ETF (IGV) 1.9%. The VanEck Vectors Semiconductor ETF (SMH) advanced 1.5%.
Apple Stock: Hold Or Sell?
At this point, most stocks will consolidate or retreat substantially. At best, you could watch a stock go sideways while new breakouts run. At worst, some or all of your tidy gains will evaporate. So it’s a good idea to take at least partial profits in most stocks after a 20%-25% gain. (If a stock soars 20% in the first two or three weeks after a breakout, try to hold for at least eight weeks.)
But some stocks will continue for long runs. So what should you do?
It depends on your confidence in the stock and company. If you have believe Apple stock will be a big winner again, you may keep all or most of your holdings in the Dow Jones component.
The 10-Week Line Sell Signal
Of course, the stock market doesn’t care about your confidence. When a stock breaks the 10-week line in heavy weekly volume, it’s a sign that mutual funds are selling. Odds are high that the stock will continue to fall. Also consider the relative strength line, which tracks a stock’s performance vs. the S&P 500 index. The 10-week average (50-day average on a daily chart) is the orange line in the charts provided. The RS line is in blue.
In late 2018, Amazon stock was in a multi-year run. With its dominant role in e-commerce and cloud computing, Amazon looked like a long-time winner.
Amazon stock tumbled in the week ended Oct. 5, closing slightly below its 10-week as the stock market correction began. The following week, Amazon stock fell hard again in the heaviest volume in several months, well below its 10-week. That offered a clear sell signal.
Two weeks later, Amazon stock fell below its 40-week line, which became a resistance area. Amazon stock has yet to hit old highs. Recently, the RS line hit a 19-month low.
Author: Ed Carson