Dow Jones futures rose slightly early Wednesday, along with S&P 500 futures and Nasdaq futures. CrowdStrike (CRWD) bounced back overnight on earnings. Tesla shares fell after an analyst downgrade.
The stock market rally saw severe losses after Fed chief Jerome Powell said policymakers are “ready to step up the pace of rate hikes”. The S&P 500 cut through its 21-day moving average and interrupted its 50-day line.
Tesla (TSLA) fell below a key level, but that can still be constructive action. Technical titans Apple (AAPL), Microsoft (MSFT) and Google older Alphabet (GOOGL), who were modest winners on Monday, relinquished those gains on Tuesday.
Many leaders held up fairly well, though others took a bit more damage. Delta Airlines (VALLEY), New relic (NEW) and Canadian Solar (CSIQ) flirted with buy signals because their respective groups were doing well.
Investors should be cautious about new purchases in the very short term and may wish to reduce overall exposure somewhat.
The video enclosed with this article reviewed Tuesday’s market action and analyzed DAL stocks, Canadian Solar and Freeport-McMoRan.
DAL stock is on the IBD Big Cap 20. New Relic was Tuesday’s day IBD stock.
Fed Chief Powell
Citing stronger economic data, Fed chief Jerome Powell said “the eventual level of interest rates is likely to be higher than previously expected.” Markets had already priced in rates higher than the Fed’s forecast for a peak rate of around 5.1% at the end of 2022.
But Powell also indicated that he is open to the Fed accelerating rate hikes. “If the totality of the data indicated that faster tightening is warranted, we would be willing to step up the pace of rate hikes.”
That puts even more pressure on Friday’s February jobs report, as well as next week’s CPI inflation report.
The probability of a 50 basis point rate hike by the Fed on March 22 shot up to 70.5%, compared to 31% on Monday and 24% a week earlier.
CRWD stock surged after beating CrowdStrike earnings and giving bullish guidance to the cybersecurity game. Shares of CrowdStrike fell 2.1% to 124.93 during Tuesday’s session, a sharp increase over the past two months but still well below the 200-day mark. Okay (OKTA), Palo Alto Networks (PANW) and Fortinet (FTNT) looked stronger.
SoundHound AI (SOUN) plummeted early Wednesday on a smaller-than-expected Q4 loss and revenue growth that was just better than expected. The AI game provided in-line revenue guidance for 2023. SOUN shares rose 2.15% to 3.33 on Tuesday. SoundHound shares are working toward a buy point of 5.04 from a consolidation that tends to form above the 200-day line.
Dow Jones Futures Today
Dow Jones futures rose less than 0.1% from fair value. S&P 500 futures rose 0.1% and Nasdaq 100 futures rose 0.2%.
The 10-year Treasury yield rose 1 basis point to 3.98%, after a slight increase of 4% overnight.
Investors will receive the ADP Employment Report at 8:15 a.m. ET, which estimates private payrolls in February. But the ADP report has an uneven track record of forecasting the Labor Department’s jobs report. The February jobs report is expected on Friday.
The JOLTS survey at 10 a.m. ET will reveal job openings starting in January.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally
The stock market rally started slightly higher on Tuesday, but fell sharply after Fed Chief Powell’s hawkish testimony at 10 a.m. ET.
The Dow Jones Industrial Average plummeted 1.7% during stock trading on Tuesday. The S&P 500 index fell 1.5%. The Nasdaq composite was down 1.25%. The small-cap Russell 2000 lost 1.2%.
Apple shares fell 1.45%, essentially wiping out Monday’s gains. During the day, AAPL stock hit 156.30, nearly clearing a one-handle buy point. Microsoft fell 1.1%, more than offsetting Monday’s reduced 0.6%. Apple and Microsoft stocks are Dow Jones, S&P 500 and Nasdaq components.
S&P 500 and Nasdaq giant GOOGL shares fell 1.4%, back to their 50-day line.
The yield on 10-year Treasury bills actually fell by 1 basis point to 3.97%. But yields peaked for shorter-dated government bonds, which are more closely tied to Fed policy. The 2-year interest rate rose by 12 basis points to 5.01%. The six-month yield on T-bills rose 17 basis points to 5.29%.
Meanwhile, the US dollar rose on Powell’s hawkish testimonials and generally higher government bond yields, reaching its highest level since late November.
US crude oil prices fell 3.6% to $77.58 a barrel. Concerns about a rate hike by the Fed, the stronger dollar and weak imports from China weighed on crude oil. For similar reasons, copper prices fell by 2.8%.
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) fell 0.6%. The iShares Expanded Tech-Software Sector ETF (IGV) lost 1.0%, with MSFT stocks a significant stake. The VanEck Vectors Semiconductor ETF (SMH) fell 1.2%
Reflecting more speculative story stocks, ARK Innovation ETF (ARKK) was up 1.7% and ARK Genomics ETF (ARKG) was up 1.1%. Tesla stock remains an important position in Ark Invest’s ETFs.
SPDR S&P Metals & Mining ETF (XME) plunged 2.85%. US Global Jets ETF (JETS) rose 0.65%, with DAL stocks a notable position. SPDR S&P Homebuilders ETF (XHB) fell 1%. The Energy Select SPDR ETF (XLE) fell 1.7% and the Financial Select SPDR ETF (XLF) slipped 2.6%. The Health Care Select Sector SPDR Fund (XLV) relinquished 1.6%.
Five best Chinese stocks to watch right now
Tesla shares fell 3.15% to 187.71, back below its 21-day moving average and the lowest closing price in a month. The EV giant has an aggressive buy point of 217.75, but investors should probably wait for a decisive move above the 200-day mark. The 200-day line is around 220 and floating lower. An extended break would bring the 200-day line back into recent consolidation and overtake the 50-day line.
On Tuesday, Chinese EV registration data showed rising Tesla sales there for the second week in a row. But Tesla’s deliveries in China are still on track to decline in the first quarter from the fourth quarter, despite major price cuts.
Berenberg downgraded Tesla stock’s rating to hold from a buy, saying the share price has returned to fair value. The analyst said Tesla’s price cuts will hit gross margins in the near term, but still see high margins in the long run.
Tesla shares lost a fraction before the open.
Analysis of the market rally
The stock market rally did not respond well to aggressive statements by Fed chief Jerome Powell and the prospect of faster rate hikes and higher interest rates.
The S&P 500 dipped below its 21-day moving average and just below the 50-day line. The Nasdaq composite fell through its 21-day line.
The Dow Jones, which met resistance at the 50-day line on Monday, fell hard on Tuesday.
Tuesday’s losses followed a generally negative session Monday. The big-cap indices erased gains that day, but held up relatively well, thanks to Apple stocks, Google and Microsoft. But losers trump winners almost 2-to-1.
The Russell 2000, which fell below the 21-day mark on Monday, fell just above the 50-day mark on Tuesday. The small-cap index had its worst close since late January.
Most of the leading stocks have fallen along with the overall market. Stocks that looked promising Monday morning have come back sharply.
Miners like FCX stocks stumbled on Tuesday over the stronger dollar and worries about the Chinese economy. But overall, leading stocks haven’t suffered too much damage yet.
DAL stocks and other airlines look healthy, along with many travel names in general. CSIQ stock is floating at a buy point with several solar names trying to shine. NEWR stock is consolidating nicely. Tesla shares could use a longer break, but are still doing relatively well.
With 10-year Treasury yields approaching 4%, short-term interest rates above 5% and a rising dollar, it’s understandable that the stock market rally has some issues.
Friday’s jobs report and next week’s CPI inflation report could bolster expectations for a half-point rate hike by the Fed this month. As Tuesday’s sell-off showed, it’s the market reaction that matters, not the news.
The S&P 500 is barely holding the 50-day line and is not far from retesting the 200-day line. The Nasdaq and Russell 2000 could easily break below major levels as well. On the upside, a rise above Monday’s intraday highs would break short-term trendlines for the S&P 500, Nasdaq and Russell.
Time the market with IBD’s ETF market strategy
What to do now
Just when the stock market rally seems to be gaining momentum again, negative news knocks the stock back. Is this a short break within a trading range or the start of something more serious? It doesn’t take much to cause severe weakness or renewed strength.
So investors need to be prepared and ready to act.
It’s probably best to postpone purchases until there is more clarity. In any case, not many stocks gave new buy signals on Tuesday. Instead, investors should consider exiting or shortening recent positions if they don’t work.
Keep working on your watchlists. The rangebound market is tricky to play, but many new bases and bullish pullbacks are also emerging.
Read The Big Picture every day to stay in sync with market direction and leading stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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