U.S. stocks rallied Tuesday on signs that lawmakers and the Trump administration were nearing a deal on a giant stimulus package aimed at limiting the economic fallout of the coronavirus pandemic.
The Dow Jones Industrial Average gained 1,792 points, or 9.7%, in afternoon trading. The S&P 500 climbed 8.6%, while the Nasdaq Composite rose 7.5%.
Coronavirus Stock Market Crash
The recent coronavirus stock market crash has fallen to bear market levels — with benchmarks more than 20% off their 52-week high. According to IBD's The Big Picture, the stock market outlook remains in correction due to the extreme volatility in the major stock indexes. Investors should be in cash, avoid new buys on breakouts, and create a watchlist of top stocks to prepare for a future stock market uptrend.
On Monday, the stock market correction worsened, as the major stock indexes fell to new correction lows amid the coronavirus outbreak. For now, Tuesday sharp gains mean the stock market is again tinkering with a new rally attempt. Follow-through days — the green light to start buying stocks — occur on day four or later of a rally attempt.
But when the time comes, don't buy just any stocks. Look for top stocks breaking out past proper buy points in heavy volume. For now, potential stocks to watch include the names on the IBD Long-Term Leaders watchlist. IBD Long-Term Leaders focuses on companies with stable earnings growth and price performance. Meanwhile, stock market leaders Amazon and Netflix are exhibiting strong relative strength.
Stocks To Watch: Amazon, Netflix
FANG stock leader Amazon gained 1.2%, as it continues to move up the right side of a new base formation. Amazon stock is again testing its 50-day moving average line, a potential resistance level.
The right side of a new base could be forming, but there is no proper buy point yet. Per the IBD Stock Checkup, Amazon stock has a best-possible 99 IBD Composite Rating. The Composite Rating helps investors easily measure the quality of a stock's fundamental and technical metrics.
Fellow FANG stock Netflix lost 1.4% in midday trade, on pace to snap a three-day win streak. On Monday, Netflix stock advanced more than 8% after Baird upgraded the stock from neutral to outperform with a new price target of 415.
The stock closed above its 50-day moving average line for the first time since March 11. The stock's RS line is at new highs, indicating big outperformance relative to the S&P 500 index. Netflix stock boasts a highest-possible 99 IBD Composite Rating due to strong earnings growth in recent quarters and top-notch price performance during the current correction.