Market Rally Action Is Dangerous; Watch Tesla, These EV Chip Stocks

Last week, the stock market showed mixed results.

Dow Jones futures, S&P 500 Futures and Nasdaq Futures will all open on Sunday evening. Watch out for Tesla (TSLA) as well as several chip stocks.

The Nasdaq reached a record high of 2023 last week but finished with a small gain. The S&P 500, Dow Jones and market breadth all fell last week.

Last week, the stock market showed mixed results. Not many stocks are offering buy signals and some have wobbled quickly.

A choppy rally in the market is risky for investors. This is still the time to keep most of your money in cash.

Tesla Stock is trying to rebound, but it faces resistance from the base as it attempts to build up.

On Semiconductor, Axcelis Technology (ACLS), and Aehr Test Systems are trading close to possible entry points. While Advanced Micro Devices, Lam Research (LRCX), and Broadcom are nearing potential entry points.

Sarepta Therapeutics is also worth watching on Monday. SRPT shares were halted during Friday's session as an FDA advisory committee discussed whether or not to recommend Sarepta’s gene therapy for Duchenne muscular Dystrophy patients. The panel narrowly decided 8-6 to approve an accelerated approval. The FDA does not have to follow a committee's decision, but it takes that into account. SRPT shares fell 8.2% in the week ending Thursday after FDA documents indicated that the therapy could be rejected.

The article's video included a discussion of the mixed messages from the recent market rally and an analysis of Kinsale Capital, Trade Desk and ON Stock.

Dow Jones Futures Today

Dow Jones futures will open at 6 pm ET on Sunday, along with S&P 500 and Nasdaq 100 futures. S&P 500 and Nasdaq futures will open at 6 p.m. ET on Sunday.

Keep in mind the overnight Dow Futures session.

Stock Market Rally

Stocks continued to rise, but with mixed trading that appeared weaker at Friday's closing.

Last week, the Dow Jones Industrial Average dropped 1.1%. S&P 500 index fell 0.3%. The Nasdaq composite index rose by 0.4%. The Russell 2000 small-cap index fell 1%.

On Friday, the 10-year Treasury yield increased by 2 basis points, to 3.46%.

Last week, U.S. crude futures dropped 1.8% to $70.04 per barrel. This is a drop of 15.1% in four weeks.

Gold prices fell 0.1% in the last day, but 1.1% over three days. Silver plunged 6.8%.

ETFs

Innovator IBD50 ETF (FFTY), a growth ETF, gained 0.3% in the past week. Innovator IBD's Breakout Opportunities ETF, (BOUT), fell 0.7%. The iShares Expanded Tech Software Sector ETF (IGV), which tracks the tech-software sector, rose by 1.4%. VanEck Vectors Semiconductor ETF(SMH) dropped 1.2%%. SMH is heavily invested in AMD, Lam Research, Broadcom, and On Semiconductor.

ARK Innovation ETF climbed by 0.8% and ARK Genomics ETF grew by 0.5% last week, reflecting the more speculative story stock. Tesla stock is No. Ark Invest's ETFs have the No. 1 holding.

The SPDR S&P Metals & Mining ETF XME fell 2.6% last week. Global Jets (JETS) fell 1.3%. SPDR S&P Homebuilders ETF XHB closed slightly above break-even. The Energy Select SPDR ETF XLE slid 2.1%. The Health Care Select Sector SPDR Fund XLV lost just over 1%.

The Financial Select SPDR ETF XLF fell by 1.3%.

The SPDR S&P Regional Banking ETF KRE fell 5.2%. PacWest Bancorp's (PACW), which disclosed significant deposits losses for the week ending May 5, plunged by 23% on Thursday.

Tesla Stock

Tesla dropped 1.2% last week to 167.98, and continues to trade near the 21-day moving median. Shares opened Friday strong, but reversed downward from near the 50 day moving average.

If Tesla's stock continues to rise, it will have a 207.89 purchase point at a double bottom base. The base is below the 200 day line but the buy-point is now above that long-sliding 200 day.

Bulls of TSLA stocks could see aggressive entries such as a 50-day line, or a downward-sloping patternline at the top the consolidation for three months. However, the risks are high, especially with the current market.

Elon Musk, Tesla's CEO, confirmed on Friday that Linda Yaccarino will become Twitter's CEO. Yaccarino recently resigned as NBC Universal ad director. Musk tweeted on Thursday afternoon that the new Twitter CEO had been found. Tesla's stock rose into the closing.

Yaccarino may be able to revive Twitter's advertising revenue. Musk will have more time for Tesla stockholders, but he will still be in charge of Twitter product and technology.

Chip Stocks to Watch

On Semiconductor supplies chips to Tesla. The ON stock is trading fairly tightly, just above the 50 day moving line in a consolidation of three months. On Semiconductor tried to erase its recent trading on Friday by flashing an early entrance, but the shares quickly lost their gains. Investors can still start a trade if the stock moves above its high of May 8, 81.72.

This is probably a better bet than buying ON stock at a breakout with an 87.65 purchase point.

Onsemi, a leading semiconductor company, is one of the major customers for Aehr Test Systems. AEHR's stock fell hard between late March and late April but found support near the 200-day line. Since then, shares have risen 2% this week to 27.67. Aehr is still below 50-day line. A decisive retake of the 50 day line would provide an aggressive entry point for AEHR in a newly emerging consolidation. Aehr Test System is probably more secure to purchase from an early entry than a traditional buying point.

ACLS stock, which was the leading chip maker in 2023 has also fallen since late March. The shares of the EV chip-equipment manufacturer fell on May 4, following Q1 results, but recovered from their lows. Axcelis has moved up to the 50 day line where it is hitting resistance. Axcelis stock would break the downsloping trendline if it retook the 50-day level. This is a good reason to enter early. The ACLS stock is at a consolidation buy-point of 136.48. Axcelis gained 1.6% this week to 122.11.

AMD shares soared 19% over the six-session period ending May 11, allowing an early entry as they sailed above the 50 day line. Shares fell by 1.9% on Friday to 95.26 %. The chip giant should forge a handle into its cup base. It currently has a buy point of 102.53.

LRCX's stock fell 0.5% this week to 527.10. Chip gear giant has a flat-base purchase point of 548.95, and it's been trading above both the 21-day line and the 50-day line in recent weeks. Investors can use 536.60 to make an early entry. This is a buy point for a pattern that's tighter than four weeks on a chart.

According to MarketSmith's analysis, AVGO has a buy point of 648.60 from a flat base that is 7% deep. The shares rose by 0.2%, closing at 631.15, just above the 50 day line. An early entry would be a decisive move over the 50-day line, perhaps crossing an downsloping trendline.

Market Rally Analysis

The rally in the stock market had a disappointing week. The Nasdaq composite reached a new 2023 high on Wednesday. It made a bit more progress Thursday, and early Friday. The Nasdaq retreated Friday and ended the week with modest gains.

The S&P500 slipped for a small weekly loss, but held its 21-day line. Dow Jones test its 50-day average. This has been a strong support area for major indices in recent months. Both indexes have lost ground for the second consecutive week.

The Nasdaq outperformed the S&P 500 in part due to Alphabet, parent company of Google (GOOGL), and other megacaps. The Nasdaq 100 rose 0.7% in the past week.

First Trust Nasdaq 100 Equal Weighted Index ETF QQEW (QQEW), a First Trust ETF, has dropped 0.3% this week. This is the fourth consecutive small weekly drop. It's still holding on to its 50-day.

Invesco's S&P Equal Weight ETF, (RSP), lost 1.1%. RSP is below all of its moving averages.

Other metrics, such as the advance/decline line and the new highs versus new lows, show a weak market breadth.

Few stocks have presented good buying opportunities. Some recent earnings gaps have worked, but not all. On Semiconductor (TSI), Trade Desk (NEWR) and New Relic have all shown signs of a buy point, but they've then fallen short, particularly TTD. These stocks might still be good, but making progress is difficult.

Stock market concerns continue to be economic, and recession is now more important than inflation. The banking crisis has not been resolved. The debt ceiling limit may be the biggest market concern. If Congress and President Biden cannot reach an agreement, a U.S. default could occur by early June.

What to Do Now

The major averages did not have a great week. However, they are still better than the equal-weighted ETFs or market internals.

Investors should be relatively low-risk. You'll be more likely to invest if you have a few positions that are performing well. Even then, you don't need to be aggressive.

A sideways market can be far more dangerous than an actual bear market. Cash is the king when indexes are falling and stocks are crashing. A rangebound, choppy market can be just strong enough to attract investors, only for them to lose their money.

Investors need to prepare for the next strong uptrend. This big bull market rally may come next week or even next month. Even though the market is struggling and there are few stocks to purchase, many stocks are either about to or have already reached their target. Prepare your watchlists.

The Big Picture is a daily read to keep up with market trends, leading stocks and sectors.