Futures for the S&P 500 index, Dow Jones industrial average and Nasdaq 100 rose solidly early Monday morning. Last week the S&P 500, Dow Jones and Nasdaq composite fell more than 5%, with leading stocks slammed, triggering a move into a stock market correction. Now is the time to pay close attention to top-rated stocks that are outperforming: Nvidia (NVDA), Bank of America (BAC), Mastercard (MA), TD Ameritrade (AMTD) and Fortinet (FTNT).
X All five stocks have relative strength lines at record highs on weekly charts, All have strong Composite Ratings: Mastercard and TD Ameritrade have best possible 99 Composite Ratings while Nvidia has a 97 CR, Fortinet 94 and Bank of America 92.
Stocks did rise Friday as the S&P 500 index rebounded strongly from a test of its 200-day moving average. But one good day doesn’t does mean that the sell-off is over. The Feb. 6 rally was just a blip in last week’s big losses. Look for a follow-through day: a big gain on at least one of the major averages in rising volume on the fourth day or later of a rally attempt.
S&P 500 futures rose 0.6% vs. fair value. Dow Jones futures climbed 0.6%. Nasdaq 100 futures advanced 0.4%. Stock futures were relatively stable compared to last week’s volatility. Overnight action often doesn’t translate into how stocks will trade in the next regular session.
President Trump will release his 2019 budget plan Monday, with reports that it will not seek a balanced budget over 10 years, breaking a long-standing, if theoretical, Republican goal. It will be interesting to see how Treasury yields react, because stocks have stumbled in large part due to the fast rise in bond yields in 2018.
Meanwhile, Bitcoin was at $8,494.32, close to Friday’s levels, according to CoinDesk.com. Bitcoin undercut $6,000 last week before rebounding as top U.S. financial regulators, though skeptical, did not signal a desire to ban cryptocurrencies. Bitcoin has still lost more than half its value in a few weeks after a climax-type run in December.
IBD’S TAKE: IBD will hold a cryptocurrency webinar Tuesday with Chief Content Officer Chris Gessel and reporter Elaine Low. They’ll show you how you can use charts of Bitcoin, Ethereum and more to buy and profit from from digital currencies. Register now for a free slot.
The relative strength line tracks a stock’s performance vs. the S&P 500 index. That will be the blue line in the charts below. In a stock market correction, almost all stocks will pull back. Look for those that give ground reluctantly. This isn’t a good time to buy stocks, but a time to look for future winners. Stocks that hold up well now may set in bases and be among the first to break out when a new stock market rally is confirmed.
In addition to those cited below, there are many stocks with strong RS lines. Check out the links below for several defense stocks and Dow components with RS lines at highs.
Last week the graphics-chip maker fell a fraction, erasing nearly all its losses Friday with a 6.4% jump to 231.46 after Nvidia reported blowout earnings and bullish guidance. Nvidia is about 7% off its Jan. 31 peak. Earlier in the week, Nvidia undercut its 50-day line but never closed below it.
Bank Of America
Bank of America rose 2% to 30.33, just retaking its 50-day line on Friday. Like Nvidia, BofA stock is about 7% off its high.
Banks benefit from rising interest rates, so BofA shares have been less affected by stock market sell-off triggered by rising bond yields.
The card giant tested its 50-day line on Tuesday and Friday, but closed comfortably above that support area on both days. Shares rose 2.85% to 165.20 on Friday. The RS line is right at record highs on a daily chart and clearly so on a weekly chart.
Unlike many financials, Mastercard and larger rival Visa (V) don’t get an interest rate benefit because they don’t carry the credit balances on cards. Those apply to card-issuing banks such as Bank of America and JPMorgan Chase (JPM).
TD Ameritrade and other online brokerages have held up well in the stock market correction. Like many financials, they do get some benefit from higher rates.
Ameritrade shares rose 0.6% to 54.69 on Friday after falling intraday below its 50-day line. The RS line is not quite at a record high on a daily chart, but is on a weekly.
Fortinet is one of the better-performing cybersecurity stocks in recent months, with an RS line low at its highest level since late 2015.
Fortinet reported better-than-expected fourth-quarter earnings after the closing bell on Feb. 5, but profit guidance was a little light. Its shares, which had closed just below their 50-day line on Feb. 5, rebounded the next day, hitting a record high. Shares pulled back on Wednesday and Thursday bur popped 4.6% to 46.54, matching Tuesday’s record close.
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