Dow Jones Futures: Market Rally Done? Indices break support as Fed fears mount
Dow Jones futures were little changed overnight, along with S&P 500 futures and Nasdaq futures. The stock rally came under further pressure on Tuesday, with the major indexes all falling below their 50-day moving averages and leading stocks struggling.
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A surprise jump in job vacancies raised expectations of big Fed rate hikes, sparking Tuesday’s market retreat. Crude oil and natural gas prices plunged, causing energy stocks to fall, while other commodities also retreated. Antero resources (YEAR), Steel dynamics (STLD) and CF Industries (CF) all fell short of buy points or early sign-ups. Hot chip names such as Phototronics (PLAB) has sold out hard.
Investors should look to reduce exposure and reduce losses.
Enphase Energy (ENPH) is holding well but testing a key level. Pinduo duo ( PDD ) is holding close to a buy point after Monday’s earnings gap, but is somewhat on its own when it comes to Chinese internet. Celsius (CELH) is finding support at its 21-day line.
Meanwhile, apple ( AAPL ) broke below its 200-day moving average. Tesla (TSLA), which had hit resistance around the 200-day line, is now heading toward its 50-day line.
After the conclusion, CrowdStrike ( CRWD ) reported better-than-expected earnings and revenue in the second quarter, with the cybersecurity firm also leading modestly higher. CRWD stock was flat in overnight trading. Shares fell 0.5% to 62.83 in Tuesday’s regular session, just above the 50-day mark. CrowdStrike stock is well below its moving 200-day line.
CELH warehouse and Steel Dynamics are on the IBD Leaderboard. Tesla stock, CF Industries, Celsius and Enphase Energy are all on the IBD 50. CF Industries and ENPH stock are on the IBD Big Cap 20. Enphase is Tuesday’s IBD Stock of the Week.
The video embedded in the article discussed Tuesday’s market action and analyzed AR stocks, Steel Dynamics and Pinduoduo.
Dow Jones Futures today
Dow Jones futures were flat relative to fair value, while S&P 500 futures declined and Nasdaq futures were little changed.
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 rally
The rally briefly tried to find a foothold, but then broke through key support levels on strong economic data. The major indices closed the session down.
The number of job vacancies rose unexpectedly in July, the Labor Ministry reported on Tuesday, following a large upward revision to June. It signals a large, unmet demand for labour. It will keep wage-price spiral fears high, even as petrol prices fall and commodity prices retreat. On Friday, the Ministry of Labor will come out with the jobs report for August.
The Dow Jones Industrial Average fell 1% in Tuesday’s trading. The S&P 500 index and the Nasdaq Composite lost 1.1%. The small-cap Russell 2000 gave up 1.4%.
U.S. crude fell 5.5% to $91.64 a barrel, more than erasing Monday’s solid gains. An OPEC+ official told Russian state-owned TASS that the cartel and its allies are not considering a supply cut. Gasoline futures plunged 6.4 percent. Natural gas prices fell 3.2%, as Europe replenishes winter storage ahead of schedule and signals moves to intervene in energy prices to limit price increases.
The 10-year Treasury yield was flat at 3.1%, supporting intraday highs of 3.15%. The two-year Treasury yield climbed 3 basis points to 3.46% amid growing expectations for Fed rate hikes. The yield curve continues to invert, a recession warning.
ETFs
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) fell 3.7%, as energy and commodity names hammered FFTY. The iShares Expanded Tech-Software Sector ETF ( IGV ) was down 0.2%. The VanEck Vectors Semiconductor ETF ( SMH ) gave up 1.1%.
The SPDR S&P Metals & Mining ETF (XME) fell 4.3%, with the STLD stock a key component. The Global X US Infrastructure Development ETF ( PAVE ) fell 2.2%. The Energy Select SPDR ETF (XLE) fell 3.4%. The Health Care Select Sector SPDR Fund ( XLV ) retreated 0.7%.
Reflecting more speculative stock stocks, the ARK Innovation ETF ( ARKK ) fell 0.5% and the ARK Genomics ETF ( ARKG ) fell 1.9%. Tesla stock remains a top holding across Ark Invest’s ETFs.
Top five Chinese stocks to watch now
Stocks to watch
ENPH shares rose 0.3% to 285.77, holding support at the 21-day line. Enphase stock has been trading relatively tight in recent weeks after skyrocketing on earnings from late July to an Aug. 8 high of 308.88. Ideally, ENPH stock will build a new base, although investors can use a move above Friday’s high as an early entry.
PDD shares rose 0.7% to 66.50. On Monday, shares rose 15% to 66.04 on Pinduoduo earnings. PDD stock briefly topped the 68.81 cup-shaped bottom buy point intraday, according to MarketSmith analysis. Last week, Pinduoduo shares surged 25%, driven by an audit agreement between the US and China that was supposed to end a delisting threat for NYSE-traded Chinese firms.
However, Pinduoduo stands out, with e-commerce rivals Ali Baba ( BABA ) is struggling, along with the most notable Chinese stocks.
CELH shares fell 0.5% to 104.43, the third straight decline. But shares in the energy drink maker found support at the 21-day line. Celsius stock is clearly below a 109.84 buy point on a huge base, so investors who bought or added shares at the time may want to at least cut those purchases. Nevertheless, the CELH share is holding up relatively well in the context of the huge movement since the beginning of May.
AAPL stock had been the only megacap stock to consistently trade above its 200-day line over the past month. But on Tuesday, shares fell 1.5% to 158.91, below that key level, which had offered an early entry just a few weeks ago. Apple stock is eyeing a return to the 50-day line, and has already hit its 10-week moving average. While a buy point at 176.25 remains in play, the recent trend is no longer the Dow tech titan’s friend.
TSLA shares fell 2.5% to 277.70, their fourth straight loss since the 3-for-1 split, though they are all on anemic volume. As with AAPL shares, the electric car giant is falling toward its 50-day line and testing its 10-week. Tesla stock is starting to lose sight of its 200-day line high above it, and some aggressive moves.
Tesla vs. BYD: Warren Buffet cuts stake in EV Giant
Market rally analysis
The stock rally has struggled since the S&P 500 hit resistance at its 200-day moving average on Aug. 16, and the sell-off intensified with Fed Chairman Jerome Powell’s hawkish speech last Friday.
On Tuesday, all the major indexes fell below their 50-day moving averages. The small-cap Russell 2000 and S&P 400 MidCap are moving quickly toward that key level.
The odds of a third straight interest rate increase of 75 basis points in September were actually lower on Tuesday, but still at a high 68.5%. But markets are slightly more confident of a half-point move in November and a quarter-point Fed rate hike in December, ending the year at a 3.75%-4% fed funds rate versus 2.25%-2.5% now.
Fed chief Powell and other policymakers say they will keep interest rates high for an extended period, suggesting a clear recession may be needed to cool labor markets and underlying inflationary pressures. And aside from Fed rate hikes, super-tight labor markets are squeezing corporate profit margins.
Leading stocks are stumbling, with recent energy breakouts faltering or failing. Antero Resources skidded 8.1% on Tuesday, during an early entry from a too-low handle. Steel Dynamics shares fell 5.6% on Tuesday after holding well following last Thursday’s breakout. Fertilizer leader CF Industries lost 6.5% after falling 4.2% on Monday to close a fraction below a buy point.
Can these stocks reverse and regain buy points or quickly set up new entries? Sure, but they can also break down.
Apple and Tesla shares show that even the better megacap names are faltering, a bad sign for the major indexes.
Solar energy stocks have been winners. But even Enphase stock has not made progress in recent weeks. Individually, red-hot Celsius stocks are doing relatively well, but are still losing some ground.
The latest rally looks increasingly like a bear market rally on its last leg. Perhaps the major indices will test or undermine their June lows. Perhaps they will be bounded between the peaks in mid-June and the peaks in mid-August. Or perhaps the market rally will find its footing and soon march above the 200-day line and beyond.
But right now the market is not working well.
Time the market with IBD’s ETF market strategy
What to do now
This is a time to cut down on overall exposure. Even putting aside portfolio management, investors should cut losses or exit small gains on recent new purchases that have fallen back.
For stocks that hold up like Celsius, and there are always a few, investors may still want to consider taking at least partial profits. If the market continues to weaken, the likelihood is high that even resilient stocks will eventually succumb.
Continue working on watchlists. The market rally may return, with new buying opportunities from handles or pullbacks. If you’re so inclined, you can also create watch lists of possible shorts, in case the market tries to bounce and then falter.
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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200-Day Average: Last Support Line?
