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Business

Dow Jones Futures Await Fed Rate Hike, But Here’s What Matters; Tesla flirts with purchase points




Dow Jones futures were little changed overnight, along with S&P 500 futures and Nasdaq futures, with the Fed meeting announcement in focus. The major indexes retreated on Tuesday as the Federal Reserve began its two-day policy meeting.




X



Tesla stock briefly flashed an aggressive buy signal, despite several signs of weaker than expected Tesla (TSLA) demand in China. It comes in the middle of a big one Ford Motor (F) warning of delivery charges, as well as unfinished vehicles. Ford shares plunged 12%, with General Motors (GM) down 5.6% despite an electric car deal Hertz (HTZ).

In addition to Tesla, chipmakers At Semiconductor (ON) and Imp (PI) shows strength along with Neurocrine Life Sciences (NBIX) and the lithium giant SQM (SQM).

apple (AAPL) rose for a second straight session. Apple stock remains below key levels. Meanwhile, other megacap tech stocks Microsoft (MSFT) and Google parent Alphabet (GOOGL) is at a 52-week low.

The NBIX stock is on the IBD Leaderboard. TSLA stock and On Semiconductor, aka Onsemi, are on the IBD 50. ON stock is on the IBD Big Cap 20. Impinj is Tuesday’s IBD Stock of the Day.

The video embedded in this article discussed Tuesday’s market action and analyzed Neurocrine Biosciences, Wolfspeed (WOLF) and PI stock.

Cool meeting

Policymakers appear deadlocked on a third straight Fed rate hike of 75 basis points, with an announcement at 2:00 PM ET Wednesday. Markets see little chance of a huge full-point hike.

The key is what the Fed sees now. Quarterly estimates will indicate where the central bank sees the Fed Funds rate at the end of 2023, and under which economic conditions. Fed Chairman Jerome Powell, in his Jackson Hole speech on August 26, made it clear that the Fed is willing to risk recession to get inflation under control.

Powell will speak at 2:30 PM ET, perhaps giving some hints about near-term rate hikes by the Fed. Currently, markets are betting on a fourth move of 75 basis points in November, followed by 50 basis points in December. That will push the fed funds rate at the turn of the year to 4.25%-4.5% from 2.25%-2.5% at the moment. Before the August CPI on September 14, markets were looking for 3.75%-4% by the end of 2022.

Dow Jones Futures today

Dow Jones futures were roughly flat versus fair value. S&P 500 futures and Nasdaq 100 futures were unchanged.

The 10-year government yield fell 2 basis points to 3.55%.

Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session.


Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live


Stock market Tuesday

The stock market fell on Tuesday on the way into the Fed meeting. A late afternoon bounce faded to the finish.

The Dow Jones Industrial Average fell 1% in Tuesday’s trading. The S&P 500 index lost 1.1 percent. The Nasdaq composite fell 0.95 percent. The small-cap Russell 2000 lost 1.4%.

Apple shares, a member of the Dow Jones, S&P 500 and Nasdaq composite, rose 1.6% to 156.90. AAPL stock hit resistance at its 21-day and remains below its 50-day and 200-day lines after last week’s big downside reversal. But a decisive move above the 50-day and 200-day lines could offer a fresh early entry.

October US oil fell 1.5% to $84.45 a barrel. November crude futures, now the near-monthly contract, fell 1.7% to $83.94.

The 10-year Treasury yield jumped 8 basis points to 3.57%, another 11-year high.

ETFs

Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) retreated 1.3%. The iShares Expanded Tech-Software Sector ETF ( IGV ) fell 1.5%. The VanEck Vectors Semiconductor ETF ( SMH ) fell 1.4%.

The SPDR S&P Metals & Mining ETF ( XME ) fell 2.7%. The Energy Select SPDR ETF (XLE) fell 0.7% and the Financial Select SPDR ETF (XLF) fell 1.5%. The Health Care Select Sector SPDR Fund (XLV) returned 1.2%.

ARK Innovation ETF ( ARKK ) reflected more speculative stock stocks, falling 2.5% and ARK Genomics ETF ( ARKG ) retreating 1.6%. TSLA stock is a large holding across Ark Invest’s ETFs.


Top five Chinese stocks to watch now


PI stock

Impinj shares fell 2.5% to 89.66 on Tuesday. Shares of the tracking chip maker are finding support at the 21-day and 10-week lines. The PI stock is working on a new consolidation which should be a proper base at Friday’s close with a buy point of 99.10. Investors can use 93.46, just above short-term highs, as an early entry that remains close to the 10-week line.

The relative strength line is right at highs, a bullish sign for PI stock as it outperforms the S&P 500 index.

In stock

Semiconductor shares fell 2.4% to 68.48 after rising 1.8% on Monday. Shares of the electric car-focused chipmaker closed just below the 21-day and 10-week lines.

The RS line for Onsi shares is right around tops.

After a breakout at the end of August from a long base that failed, the ON share may have a new, shallow base at the end of next week. Investors can use 73.03 as an aggressive entry, which will also be back above the top of the previous consolidation.

NBIX share

Neurocrine shares fell 0.7% to 107.09, finding support again at the 21-day moving average. NBIX stock has a flat base with a buy point at 109.36, according to MarketSmith analysis. The flat base is just above a previous consolidation, making this a base-on-base formation. Investors can use a move above Monday’s high of 108.71 as a slightly lower entry. The RS line for NBIX stock is at a new high.

SQM stock

SQM shares fell 2.4% to 104.66, right at the 21-day line. Shares in the Chilean lithium-and-fertilizer giant tried to break out of a messy cup-with-handle earlier this month, but never closed above the 113.80 buy point. The good news is that the 50-day line is starting to catch up.

The RS line for SQM stock is near highs.

Tesla shares

Tesla shares rose as high as 313.33, extending gains and moving above a very aggressive buy point at 309.22. But shares faded to end up 0.1% at 308.73. TSLA stock is near 314.74 buy points from a brief consolidation, within a much larger consolidation that could be a real base at the end of this week.

The RS line has increased recently to just below the peaks at the beginning of April.

Buying TSLA stock, or any stock, in the current market environment would be extremely aggressive.

CEO Elon Musk tweeted on Tuesday about Optimus, the humanoid Tesla Bot that he may show off at the company’s AI Day on September 30. Most experts say a useful humanoid robot is decades away. He also hinted at an improved Smart Summon or autopark feature, which has had issues over the years.

Sales of Tesla China are, however, below expectations. Local sales should continue to hit records in September as Shanghai capacity has expanded again. But registrations for Tesla car insurance fell in the past week, a time when they usually increase sharply.

Waiting times for Tesla China have fallen sharply in recent weeks, and the EV giant is resorting to a large insurance subsidy to drive sales at the end of the quarter. That could lead to actual price cuts later this year.


Tesla vs. BYD: Which EV giant is the best buy?


Stock market analysis

Well, it’s a stock market correction. The S&P 500 and Dow Jones on Tuesday undercut last Friday’s lows, before paring losses somewhat.

The good news on Tuesday is that stocks were not headed for major Fed-related news. That is in contrast to the Aug. 26 Jackson Hole speech by Fed chief Powell, or the Sept. 14 CPI inflation report.

It is no coincidence that the stock market is struggling with government interest rates screaming higher.

The summer bull case revolved around the Fed. At first, it was expected that the Fed would slow rate hikes soon, then start cutting interest rates in 2023. After that, there was still hope that the Fed would slow rate hikes and stop at the end of the year.

But now the Fed is on track to raise interest rates aggressively through the turn of the year, with more possible in 2023. That means much more pain for the economy.

The current environment of low growth and high inflation has not exactly been easy for businesses. Ford, FedEx (FDX) and General Electric (GE) is among those who have warned in the last week.

The Ford stock sell-off on Tuesday, following FDX and GE last week, shows that investors have not priced in significant earnings disappointments. Expect many more warnings over the next few weeks.

Given the weakness of recent weeks, it is possible that the market will bounce on Wednesday after the Fed meeting and Fed Chair Powell’s call. Remember that the market often reverses course in a day two reaction to a Fed meeting.

Until there is clarity on when the Fed can begin to slow down and stop tightening, it is difficult to see the markets making meaningful progress. It is not difficult to see the major indexes testing or undershooting their June lows.


Time the market with IBD’s ETF market strategy


What to do now

The market correction is back in force with the Fed about to raise interest rates sharply again, with no end in sight. Companies are issuing stark warnings amid tough macroeconomic conditions that are likely to worsen.

Investors should have little or no exposure and not make new purchases. Wait until there is a confirmed uptrend, which will likely involve the major indices regaining their 50-day moving averages. Even in that scenario, other technical hurdles, as well as the Fed and economic backdrop, should keep investors cautious.

For now, investors should work on their watchlists, focusing on relative strength stocks like the NBIX stock, On Semi and Tesla. Remember that today’s relative winners may start to break down if the correction intensifies.

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 exchange updates and more.

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