Futures for the S&P 500 index, Dow Jones industrial average and Nasdaq 100 rose Wednesday morning after the major averages rallied from morning losses for a third straight gain on Tuesday. Inflation data before the open could be a big market mover.
X The market is not in a confirmed uptrend, but here are software stocks to consider for your watch list: Microsoft (MSFT), Adobe Systems (ADBE), Paycom (PAYC), Workday (WDAY) and LogMeIn (LOGM).
As for the overall stock market, the S&P 500 index, Dow Jones and Nasdaq composite have now climbed for three straight days. Over the next several days, the major averages could confirm a new market uptrend. But corrections often have short-lived rally attempts, followed by renewed selling. The next objective is for the key indexes to retake their 50-day moving lines, with the Nasdaq closest to that key level.
Before the market open, investors will get January readings on the consumer price index and retail sales. The CPI will get close attention given the renewed inflation and Federal Reserve fears stemming from rising bond yields and accelerating wage gains. The CPI is expected to show a 0.1% monthly rise, or 0.3% excluding food and energy, according to Econoday. Year over year, the CPI is seen climbing 2%, with core CPI up 1.7%.
S&P 500 futures climbed 0.4% vs. fair value. Nasdaq 100 futures were 0.5% higher. Dow futures rose 0.55% above fair value.
Remember that overnight trading often doesn’t translate into where stocks will open or close the next market day.
Adobe Systems, Paycom and Workday are all in buy range, though no stock is a buy in the current market. Microsoft arguably is a buy. LogMeIn is setting up in a cup-with-handle base with earnings on tap Thursday. All are highly rated: Adobe Systems, Paycom and LogMeIn have best-possible 99 Composite Ratings. Workday has a 97 Composite Rating. The Composite Rating is an overall score for stocks based on a variety of fundamental and technical factors. All-time stock winners often have CRs of at least 95 near the start of their runs.
Microsoft’s CR is just 89. That reflects a lackluster 67 EPS Rating, but investors have rewarded the software maker for its rapid growth in cloud computing.
All five stocks have relative strength lines at or near highs. The RS line — the blue line in the charts below — tracks a stock’s performance vs. the S&P 500 index.
IBD’S TAKE: Don’t try to guess where the market will go next. Focus on what the major averages and leading stocks are doing right now. Read the Stock Market Today columns and The Big Picture to keep you in sync with market trends and turns.
Microsoft stock rose 0.8% to 89.83 on Tuesday after reclaiming an old 86.30 entry and its 50-day line on Friday. But is that buy point still valid? Microsoft erased an 11% gain from the entry during the market sell-off. Normally, a stock that round-trips a double-digit gain means that the entry no longer applies. But given the stock’s relatively strong performance in the correction it would be understandable if investors bought it in a hypothetical confirmed market uptrend.
Adobe stock edged up 0.7% to 193.48 on Tuesday, reclaiming a 186.37 entry on Friday. The stock hasn’t closed below its 50-day line during the recent market correction.
Workday advanced 0.9% to 116.63 on Tuesday after moving back above a 114.98 entry on Monday. Shares tested their 50-day line last Friday but rallied for a gain that day.
Paycom shot up 5.2% to 88.90 on Tuesday, back above an 86.20 entry point. Paycom had sold off during last week’s tumble, but didn’t quite fall enough to invalidate the entry point.
LogMeIn rose 1% to 125.95, closing in on a 128.45 handle entry. Shares tested their 50-day lines last week but never closed below that key support.
On Thursday, LogMeIn is expected to report an 87% earnings-per-share gain to $1.16. Revenue should spike 216% to $278 million, in large part due to LogMeIn’s merger with former Citrix Systems (CTXS) unit GoTo.
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