Dow Jones futures rose slightly late Thursday, along with S&P 500 futures and Nasdaq futures, after the stock market rally powered to all-time high levels, while short-squeeze plays such as GameStop (GME) and AMC Entertainment (AMC) plunged yet again.
The stock market rally showed broad gains, with the Nasdaq composite and S&P 500 hitting record highs. Growth stocks showed bullish action. However, the market rally is extended once again.
GameStop Won’t Stop … Crashing
GME stock, AMC, Express (EXPR) and Koss (KOSS) resumed heavy selling on Thursday after bouncing on Wednesday. Treasury Secretary Janet Yellen met with financial regulators about the Reddit short-squeeze phenomenon, but it’s unclear if that drove Thursday’s moves. Shares of GME stock plunged 42% to 53.50, AMC stock tumbled 21%, Express lost 7.9% and Koss 26.5%. GME stock is now 89% below its Jan. 28 intraday high of 483. GameStop closed back below its 63.77 pre-squeeze all-time high from December 2007, back when physical video games and mall-based retailers were hip.
GameStop and AMC stock fell overnight.
Could GME stock and other Reddit short-squeeze plays rebound somewhat? Of course. But the vast number of investors holding onto GameStop shares bought at 100, 200, 300, 400 or above, which offers a massive amount of overhead supply ready to sell into any rally. Even “diamond hands” can crack when faced with eye-watering losses. Meanwhile, it’s unclear what the bull case for GME stock is on a fundamental basis. Shares could easily tumble from current levels.
Key Earnings Movers Late
PINS stock and Bill.com were strong winners in late trade. Ford stock rose slightly. Snap stock, Peloton and Unity Software were notable losers. Fortinet fell modestly while Monolithic Power was little changed.
Dow Jones Futures Today
Dow Jones futures rose 0.1% vs. fair value. S&P 500 futures advanced 0.1%. Nasdaq 100 futures were 0.15% above fair value.
Coronavirus cases worldwide reached 105.41 million. Covid-19 deaths topped 2.29 million.
In the U.S., Coronavirus cases have hit 27.27 million, with deaths above 466,000.
Johnson & Johnson (JNJ) late Thursday sought FDA emergency use approval for its one-shot coronavirus vaccine. The J&J vaccine is less effective than some others, but the one-shot jab provides strong protection, especially from serious illness.
Stock Market Rally
U.S. Stock Market Today Overview
Last Update: 4:36 PM ET 2/4/2021
The stock market rally had its third strong gain of the week, recouping all or nearly all of last week’s sharp losses.
And the Dow Jones Industrial Average climbed 1.1% in Thursday’s stock market trading. The S&P 500 index also advanced 1.1%. Meanwhile, the Nasdaq composite jumped 1.2%. The Russell 2000 popped 2%, also hitting a record high like the Nasdaq and S&P 500.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rallied 2.1%, while the Innovator IBD Breakout Opportunities ETF (BOUT) climbed 0.8%. The iShares Expanded Tech-Software Sector ETF (IGV) advanced 1.6%. The VanEck Vectors Semiconductor ETF (SMH) gained 1.1%, as chip-gear makers offset weakness in some chipmakers.
Peloton earnings were better than expected amid surging digital subscriptions for the exercise equipment and training company. Peloton stock fell 8% overnight. PTON stock rose 7% to 157.53 on Thursday, rebounding from its 10-week line and reclaiming its 21-day line. That’s after Peloton briefly tested a prior-base breakout last week.
Pinterest earnings beat with revenue up 76% and number of users up 37%. PINS stock jumped 10% overnight. Pinterest stock edged up 0.9% to 77.84 on Thursday, hitting a record high intraday. PINS rebounded powerfully from its Jan. 27 low.
Snap earnings beat views but the social network gave light operating profit guidance. Snap sank 7% in extended trade. Shares of the Snapchat operator closed down 1.6% to 58.31. Snap stock surged from a Jan. 27 50-day line test to a new high on Wednesday.
Unity Software beat earnings views, but didn’t crush revenue views. It gave in-line guidance for decelerating sales growth. Unity stock tumbled 11% overnight. The maker of software for video game design and animation closed up 1% to 149.81. Unity stock has found support at the 50-day line several times in recent weeks but is set to tumble far below that level.
Ford Motors Higher
Ford earnings surged 283%, defying views for an outright loss. Ford more than doubled its spending plan for electric and autonomous vehicles. The automaker’s stock rose modestly in extended trade. Shares rose 1.5% on Thursday to 11.37, continuing a rebound from the 21-day line after a pullback from a late January breakout.
Bill.com earnings topped views with a smaller-than-expected loss and solid revenue gain. Bill.com stock jumped 10% overnight. BILL stock climbed 4.2% to 139.87 on Thursday, once again rebounding from its 50-day line. On Tuesday, Bill.com broke a downward-sloping trend line, offering a buying signal, except that earnings were on tap.
Fortinet earnings rose 38% and revenue 21%, while the cybersecurity play gave upbeat 2021 revenue guidance. FTNT stock sank 3% in extended trade. Fortinet stock rose 4% on Thursday to 156.99, back above a 152.05 cup-base buy point as well as 155.41 alternate entry above its record high.
Monolithic Power earnings and revenue beat views. MPWR stock was not active overnight as of Stock Market Today publication time. Shares of the data center-chip maker edged up 0.3% to 367.07 in range from a 358.79 cup-base buy point. MPWR stock sold off last week but found support at its 10-week line.
Stock Market Rally Analysis
The stock market rally has bounced right back from last week’s pullback, with the Nasdaq at record highs and the S&P 500 on the cusp of getting there. Growth stocks are breaking out, reclaiming buy points or staging bullish rebounds.
So what could go wrong? The Nasdaq is now 7.1% above its 50-day moving average, above the 6% level that typically signals it is extended. While the index did get 11.6% above its 50-day line on Sept. 2, just before tumbling into a correction, it seems that 7%-8% has been the danger area in the post-election rally. On Jan. 25, the Nasdaq got 8.2% above its 50-day line, just before last week’s pullback. So while the Nasdaq could keep getting more extended, it likely doesn’t have a lot of room to run before another pullback occurs.
In the past few months, those pullbacks have been one-day or at worst one-week events with ultimately minor damage. But there’s always the risk of a much-larger pullback or an outright correction. Investors should game plan for that possibility.
Right now, growth investors don’t need to be defensive but may want to be cautious about adding net exposure. If there’s a pullback, many new buys could quickly get underwater.
Investor Exposure High
Investor exposure overall does seem high.
Margin debt rose 34% in December vs. a year earlier. That’s a multiyear high, but below the 55% gain typically associated with tops before a bear market. However, call options exploded 437% in January vs. a year earlier, with use of options skyrocketing among retail investors. Along with the rise of leveraged ETFs, it’s clear that investor leverage is a warning sign.
In the event of a more-serious pullback, a sharp decline in leverage could build on itself.
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