Image: MarketWatch

The major stock indexes closed out a turbulent week on a high note Friday, staging an upside reversal with the Dow Jones Industrial Average gaining 0.9%. The S&P 500 and Nasdaq composite also rebounded strongly from morning lows amid a continued surge in Treasury yields.

Stocks wavered throughout the week between gains and sharp declines, but showed renewed strength to finish on a bullish note. Nvidia, Meta Platforms, Lilly, Arista Networks and CrowdStrike were among the leading stocks flashing buy signals and presenting new opportunities. Investors are looking to gradually add exposure to top stocks if the nascent rally attempt continues to gain momentum.

After Struggle, Stocks Stage Upside Reversal

The Dow Jones fell 0.3% for the week, which included a concerning drop below recent lows on Wednesday before rebounding 0.9% Friday. The blue chip average found support near 29,000 as it did in mid-June.

The S&P 500 ended the week up 0.5% after undercutting key support levels earlier in the week. The large cap index bounced firmly on Friday, retaking its 21-day moving average.

The Nasdaq composite extended its recent rally attempt, jumping 1.6% Friday and gaining 1.4% for the week. The tech-heavy index closed well above its 21-day line.

Meanwhile, the small-cap Russell 2000 had a rough week, slumping 2.1% to hit a five-month low on Tuesday before paring losses later in the week. Weakness in the high-risk small cap area remains a worry.

The market has seen significant distribution and lackluster breadth in recent months. But Friday’s solid advance showed broader participation with NYSE advancers leading decliners by nearly 5-to-1. Volume also picked up across the major indexes, providing evidence of institutional buying.

Rates, Economic Data in Focus

The 10-year Treasury yield surged 21 basis points for the week to 4.78% on Friday, topping 4.8% early before pulling back. The sharp rise in rates has pressured growth and technology stocks this year. But tech leaders drove Friday’s rebound.

All eyes will turn to the September CPI and PPI inflation reports in the coming week. Economists expect a 0.2% monthly rise in the Consumer Price Index vs. a 0.1% increase in August. On an annual basis CPI is forecast to rise 8.1%, still well above the Fed’s 2% target but cooling slowly from higher levels earlier this year.

Inflation remaining stubbornly elevated all but guarantees the Fed will deliver another sizable 75 basis point rate hike at its November meeting. The central bank has hiked aggressively to curb price pressures, a policy that risks tipping the economy into recession.

Meanwhile, U.S. crude oil prices tumbled 8.8% for the week to $82.79 a barrel as demand concerns grow while supplies remain elevated. Gasoline futures plunged 19% over the last three weeks to hit fresh 2023 lows after surging earlier this year in the wake of Russia’s invasion of Ukraine.

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The upcoming third-quarter earnings season will offer critical insights into how corporate America is navigating high inflation and rising rate headwinds. Delta Air Lines, PepsiCo and BlackRock are among the bellwethers reporting results next week, in addition to big banks JPMorgan Chase, Wells Fargo and Citigroup.

Top Stocks Flashing Buy Signals

Nvidia stock rose 2.4% on Friday and 5.2% on the week to reclaim its 50-day moving average line and stage a breakout from a short downtrend. The move above the key level offered an early entry point. Shares are working on forming a new base with a potential 502.66 official buy point.

The graphics chip leader has faced pressure this year on shrinking gaming and crypto mining demand, but its dominance in AI, data centers and autonomous driving provide long-term growth drivers.

Social media giant Meta Platforms bounced 3.5% on Friday, clearing a cup-with-handle buy point at 310.64 as well as an earlier entry at 312.87. Meta stock has staged a huge 145% rebound in 2023 after plunging 71% in 2022 — its worst year ever.

Meta is aggressively pushing into the metaverse and virtual reality, viewed as the next frontiers of social connection. It’s also ramping up its AI focus with new chatbots and other products revealed recently.

Networking leader Arista Networks popped 3.2% on Friday and an enormous 45.5% for the week to sail past a 189.90 early entry. Shares cleared the key level on Monday, offering a buying opportunity. Arista stock now has a flat base pattern with an official buy point of 198.70.

ANET boasts a 98 Composite Rating, reflecting strong fundamentals including a 96 EPS rating. Earnings growth has accelerated in recent quarters to 59%-282% levels.

Eli Lilly rebounded 4.4% on Friday after finding support near its 50-day line earlier in the week. Shares closed back above their 21-day average to flash a new buying opportunity. Lilly stock has been forming a flat base for the past month, presenting a buy point at 382.81.

The drug giant has delivered strong growth as demand increases for its diabetes, cancer and autoimmune drugs. Lilly has several potential blockbuster drugs in its pipeline as well. Shares carry a near-perfect 99 Composite Rating.

Cybersecurity software play Qualys charged higher on Friday, climbing 4% in above-average volume. Shares cleared short-term resistance levels around 155 as well as a prior 52-week peak of 157.88. That recent area of consolidation provides a buying opportunity, either as a flat base or as the handle of a larger base extending back to September 2022.

Qualys carries a top-notch 99 Composite Rating, including a 96 Relative Strength rating. The company has posted accelerating sales and earnings growth in recent quarters.

CrowdStrike vaulted 6.9% on Friday in nearly double its average volume, retaking its 21-day moving average and clearing short-term resistance around 165. The powerful move signals a breakout from a period of messy consolidation. CRWD stock now has a cup base with an official buy point at 190.58.

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The cybersecurity leader has seen explosive growth in recent years, though sales gains did decelerate in 2022. Companies remain focused on boosting IT security spending despite economic uncertainty.

Palo Alto Networks jumped 4.2% Friday, climbing back above its 21-day line and breaking a short downtrend in place since mid-September. Shares moved above their 50-day line and cleared some other short-term resistance around 240. PANW stock has a cup base with an official buy point of 258.88. But investors could use 254.23 or the rising trendline, around 250 currently, as early entry points.

The networking and cybersecurity firm has delivered extremely strong growth. Sales surged 47%-70% the last four quarters. It holds a 98 Composite Rating.

CME Group spiked 4.85% Friday to clear a buy point at 209.31 from a flat base. Volume was 179% above average on the breakout, capping a strong week of gains. CME stock has a 94 Composite Rating.

The derivatives marketplace operator has benefited from heavy volume and volatility amid rising rates, economic uncertainty, the Ukraine war and other factors driving elevated trading activity. EPS has grown 59%, 105% and 92% over the last three quarters.

And resilient Tesla stock rebounded 4.1% this week, finding support repeatedly near its 50-day moving average. Shares closed Friday just below a short-term downtrend line, offering a potential new entry. TSLA has a cup base with an official buy point at 278.98.

The high-profile EV maker showed strength despite a flurry of negative headlines, from disappointing delivery numbers to price cuts. But its devotion and rising global EV demand remain powerful long-term tailwinds.

What Should Investors Do Now?

The market’s upside reversal on Friday provided a bullish conclusion to a turbulent week for stocks. Major indexes moved back above short-term averages while leading stocks across various sectors posted powerful gains and flashed buy signals.

Investors should spend this weekend updating watchlists and focusing on stocks forming bases or moving above key levels. Concentrate on leaders showing strong relative strength and top-tier fundamentals.

The recent pullback has brought valuations down to more reasonable levels on many hypergrowth names after the runaway rally off the June lows. This presents a fertile hunting ground for savvy investors. Building exposure gradually at present levels could pay major dividends.

But tread carefully and remain flexible — rapidly rising rates still pose a hazard that could upend the nascent rally attempt. Keep stops tight and stick to selling rules without hesitation if positions start to slide.

The upcoming third-quarter earnings season will provide critical insights into the health of Corporate America. Listen closely to what managements have to say about inflationary pressures, rising costs, supply chain woes and consumer demand.

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Stay poised to shift exposure in response to changing market conditions. Remaining adaptable and not wedded to any positions is key to long-term success.

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AM provides comprehensive research and stock analysis to help investors identify top-performing companies as leaders emerge. Study historical charts on market bottoms to learn when to get back in after pullbacks.

While Friday’s surge was encouraging, the stock market rally attempt still faces major resistance. The S&P 500 remains deep in a correction, down over 25% from its all-time high. It closed the week back near its 200-day moving average after breaching that key level — a very bearish sign.

At the sector level, energy and materials were the week’s biggest losers as commodity prices retreated. Consumer staples and utilities managed slim gains amid their relative safety.

Looking deeper at industry groups, homebuilders and retailers continue recent struggles as higher rates sideline buyers. Regional banks popped on rising yields. Managed care rebounded on possible easing of political headwinds.

But to confirm a sustainable bottom, market breadth needs broad improvement with wider leadership. New bull markets are born out of extreme pessimism yet few signs of capitulation have emerged.

The midterm elections in early November could remove some uncertainty depending on the outcome. Gridlock would likely suit investors best.

Going into 2023, volatility will likely persist amid inflation stickiness, monetary tightening, war impacts and slowing growth. Patience and protective stops will be key.

While picking long-term winners like Apple, Microsoft and Google parent Alphabet seem like no-brainers, even big tech faces challenges. But their massive size and cash flows help weather downturns.

Rather than guessing when the market will bottom, let powerful breakouts in leading stocks point the way. Study comeback plays with strong fundamentals. History has shown that cutting losses quickly and letting winners ride is the path to outperformance.

Embrace a strategy that adapts to market conditions. The best investors combine sound risk management rules with the flexibility to shift gears as needed.

This prudent approach allows you to take advantage of upside potential in rallies, while limiting damage during selloffs. Remember, it’s much easier to get back what you’ve lost.

So be vigilant and ready to adjust exposure based on the weight of the evidence. While Friday brought relief, the bears still lurk right around the corner. Stay focused on the price action rather than opinions or predictions.

And above all, remain patient and avoid forcing trades. The market will eventually shift in your favor. Maintain the confidence and discipline to capitalize when outstanding risk-reward opportunities emerge.

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