Dow Jones Futures: Breadth Widens; Fat next
Dow Jones futures were little changed after hours, along with S&P 500 futures and Nasdaq futures. The Federal Reserve will announce its policy decision on Wednesday afternoon, with markets expecting a “hawkish pause”.
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The stock rally continued as CPI inflation data reinforced bids that the Fed will do nothing on Wednesday. Meanwhile, hopes of China stimulus also boosted commodities, industrials and many Chinese stocks.
Tesla (TSLA) continued its record-breaking run. Nvidia (NVDA) approved a buy point for existing investors, although it was an aggressive entry.
The major indexes rose modestly with the Nasdaq and S&P 500 at 52-week highs and the Dow Jones moving to a four-month high. Small and medium-sized stocks led among strong market breadth. But Nasdaq is about to be expanded – and so are many executives.
Lattice semiconductor (LSCC) made a bullish move while Cloudflare (NET) bounced back above a buy point. Unity software (U) topped an early entry into the handle. Vertex Pharmaceuticals (VRTX) flashes an early entry. Freeport-McMoRan (FCX) gapped above its 50-day line.
Still, investors should be cautious about adding exposure, particularly to technology stocks, in the current environment.
Tesla and Nvidia shares are on the IBD Leaderboard. NET stock is at the IBD 50. TSLA stock is at the IBD Big Cap 20.
The video embedded in this article highlighted the market action and analyzed LSCC shares, Vertex and Freeport-McMoRan.
Fed meeting decision
The consumer price index inflation rate fell to a two-year low of 4% in May, somewhat cooler than expected. Core CPI fell to a still high 5.3%, in line with estimates.
With no negative surprises, the CPI inflation report was essentially locked in expectations that the Fed will leave the target interest rate at 5-5.25%. The key will be the outlook for Fed rate hikes, including from Fed chief Jerome Powell. The markets are pricing in a 65% chance of a Fed rate hike at the end of July.
The Fed meeting announcement is at 2 p.m. ET Wednesday, with Fed Chair Powell expected at 2:30 p.m.
Dow Jones Futures today
Dow Jones futures fell 0.1% relative to fair value. S&P 500 futures and Nasdaq 100 futures rose 0.1%.
Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session.
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Stock market rally
The stock rally showed a broad advance on Tuesday, riding on the back of the upside in government yields.
The 10-year government yield rose 7 basis points to 3.84% after initially falling to 3.68%. It is the highest since May 26 and the strongest in three months.
The US tame inflation report eased concerns heading into the Fed meeting decision. Meanwhile, China’s central bank trimmed short-term interest rates on growing optimism that Beijing will introduce new fiscal stimulus amid disappointing economic data.
The Dow Jones Industrial Average rose 0.4% in Tuesday’s trading, to its highest point in four months. The S&P 500 rose 0.7% and the Nasdaq Composite gained 0.8%, both at fresh 52-week highs. The small-cap Russell 200 jumped 1.2%, a three-month best.
US crude oil prices rose 3.4% to $69.42 a barrel. Copper futures rose 2.1 percent. Commodities rose on China’s stimulus talk and a weaker dollar.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF ( FFTY ) climbed 1.4% to a six-month high. Innovator IBD Breakout Opportunities ETF (BOUT) rose 1.6%. The iShares Expanded Tech-Software Sector ETF ( IGV ) rose 0.7%, with Unity stock an IGV share. The VanEck Vectors Semiconductor ETF ( SMH ) rose 1.4%, with NVDA stock as the No. 1 component.
ARK Innovation ETF ( ARKK ) reflected more speculative story stocks, rising 2.3% and ARK Genomics ETF ( ARKG ) rose 3.3%. Tesla stock is the largest holding across Ark Invest’s ETFs. Cathie Wood trimmed its TSLA stock stake on Monday. Tesla shares jumped 3.55% to 258.71. It has now advanced for 13 straight sessions, with the last 12 in above-average volume, both records.
The SPDR S&P Metals & Mining ETF ( XME ) jumped 2.75%, with the FCX stock a notable component. The Global X US Infrastructure Development ETF (PAVE) rose 1.7%. The US Global Jets ETF (JETS) rose 2.1%. The SPDR S&P Homebuilders ETF ( XHB ) rose 1.3%. The Energy Select SPDR ETF ( XLE ) rose 0.5% and the Health Care Select Sector SPDR Fund ( XLV ) added 0.5%, with VRTX stock a stake. The Industrial Select Sector SPDR Fund ( XLI ) rose 1.15%, setting a 52-week high.
The Financial Select SPDR ETF ( XLF ) rose 0.6%. The SPDR S&P Regional Banking ETF (KRE) rose 2.25 percent.
Top five Chinese stocks to watch now
Nvidia shares
Nvidia rose 3.9% to 410.22, paring most of a three-week tight pattern to record close. Existing investors could have added a small amount to NVDA stock here, but would definitely have wanted some quick stops to exit the position. Nvidia stock is 13% above its 21-day line and 97% above its 200-day line. With the risk of the Nasdaq pullback increasing, NVDA could easily fall back.
LSCC share
Lattice Semi shares fell 4.1% to 90.81, a day after retracing the 50-day line, both on higher volume. Investors could have used Tuesday’s move as an early entry, although it supported an intraday high of 94.25. At this point, investors can wait to see if LSCC stock takes hold of the consolidation, which currently has a buy point at 96.82, according to MarketSmith analysis.
Unity Stock
Unity Software stock jumped 7.2% to 38.58 on heavy volume once again. Shares stopped just below a 39.45 cup-with-handle buy point during the day, but broke the downtrend in the handle, making an early entry.
VRTX share
Vertex shares rose 0.4% to 342.10. On Monday, shares rose 1.9% in strong trading, jumping above the 21-day line and the 50-day. It offered an early entry into a flat base in a base-on-base formation. The official buy point is 354.46.
FCX stock
Copper mining giant Freeport-McMoRan shares jumped 5.3% to 39.82, rebounding from the 50-day line and breaking a downtrend back to the late January peak. Investors could have used that move as an early entry into FCX stock.
Market rally analysis
The share rise shows increasing strength and breadth, even if the technology is starting to look expanded.
The Nasdaq is now 9% above its 50-day moving average, with the Nasdaq 100 up 10.1% above the key level. At 10%, the risk of a withdrawal increases, with an increasing chance of a more significant withdrawal.
Advances led decliners 2-to-1, with new highs crushing new lows. The Invesco S&P 500 Equal Weight ETF (RSP) climbed 0.8%, also hitting a three-month high like the Russell 2000.
The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) rose 1%. That outpaced the Nasdaq 100’s 0.8% gain, even with megacaps Tesla and Nvidia charging higher.
Chips, software and home builders have been leading the way for some time. Now industries, airlines, miners and Chinese names are making moves, although many have already expanded.
Some medical product companies and biotechs are close to buy points without being extended, along with some casino and gaming companies. But it also means that many have not taken part in the market’s progress in recent weeks.
A Nasdaq-led pullback would not be a surprise, and would likely be healthy. The broader breadth and leadership suggests that the market rally is better able to handle a technical break or modest retreat.
The Fed announcement and Powell’s comments are sure to sway markets Wednesday afternoon. It may continue in a second-day reaction on Thursday.
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What to do now
The stock rally continues to gain momentum, with a wider range of managers.
But many leading stocks, even newer ones like industrials and travel, look extended, even from their moving averages. Many growth plays are highly extended.
What investors need now is patience. If you haven’t jumped on board many of these names, you’ll probably have to wait for new listings to develop. For example, industries that have reached or close to buy points, handles or short consolidations can create new buying opportunities. For many technologies, a longer pullback or pause may be necessary to allow moving averages to catch up or new bases to form.
If you own any big winners, make sure you have an exit strategy.
With the market rally’s breadth and leadership expanding, investors must keep up. Continue to update your watchlists, which should have expanded significantly in recent weeks.
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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