Dow Jones futures tipped higher overnight, along with S&P 500 futures and Nasdaq futures, ahead of a major inflation report. Biogen (BIIB) dived late when Medicare restricted coverage of Alzheimer’s medicine.
The rise in equities extended a rise on Tuesday and crude oil prices jumped as Fed chief Jerome Powell eased fears that the central bank would be too aggressive in reducing its massive balance sheet.
Advanced micro devices (AMD) and Nvidia shares rose on Tuesday, and investors could see the benefits of dual-base databases. But trying to guess the (double) bottom of a stock is full of danger. Tesla (TSLA) has a new point of purchase, while apple (AAPL) reboundly bullishly from a key level. Meanwhile, Zim integrated shipping (ZIM) broke out.
Tesla stock and Nvidia (NVDA) is on the IBD Leaderboard. Tesla and ZIM stock are at IBD 50. Zim Integrated Shipping was Tuesday’s IBD Stock Of The Day.
Meanwhile, Medicare plans coverage limits on the expensive and controversial Biogen (BIIB) Alzheimer’s drug. It will only pay for Aduhelm for Medicare patients in clinical trials. The biogenic store plunged. Eli Lilly (LLY), who works with a similar Alzheimer’s drug, fell modestly.
Fed Chief Powell
Fed chief Powell testified Tuesday at a confirmation hearing in the Senate for another term. He assured lawmakers that the Federal Reserve will bring inflation under control.
Powell said the need for aggressive monetary stimulus is over, adding that the Federal Reserve may see some balance sheet settlements in 2022, after asset purchases go to zero in mid-March. It seemed less hawkish than at least some of his colleagues. As revealed in last week’s release of the Fed Protocol, several decision-makers spoke at the December meeting to cut the balance sheet just after the first Fed rate hike, which could take place as early as March. Some also suggested that they wanted to reduce the balance aggressively.
The Ministry of Labor’s consumer price index for December matures at 8:30 ET on Wednesday. Economists expect the CPI to show an increase of 0.4%, or 0.5% excluding food and energy. Total consumer inflation is set for a new long-term high of 7.1% from November’s 6.8%. Core inflation is estimated to reach 5.5%, up from 4.9%.
On Thursday, the Ministry of Labor releases the producer price index.
Dow Jones Futures today
Dow Jones futures rose 0.1% relative to fair value. S&P 500 futures and Nasdaq 100 futures rose slightly.
The 10-year government interest rate fell 1 basis point to 1.74%.
Keep in mind that overnight trading in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular trading session.
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Stock market rally
The rise in equities had a solid increase as investors seemed to appreciate Fed Chairman Powell’s comments. Growth stocks, among the hardest hit in 2022, led the upswing.
The Dow Jones Industrial Average rose 0.5% in Tuesday’s trading, with a slowdown as investors sold some defensive blue-chip names. The S&P 500 index rose 0.9 percent. The Nasdaq composition rose 1.4 percent. Small-cap Russell 2000 advanced 1%.
The 10-year government interest rate fell 3 basis points to 1.75%. The yield reached 1.81% intraday on Monday. US crude futures rose 3.8% to $ 81.22 a barrel, a two-month high.
Among the best ETFs, Innovator IBD 50 ETF (FFTY) rose 1.3%, while Innovator IBD Breakout Opportunities ETF (BOUT) rose 1.2%. iShares Expanded Tech-Software Sector ETF (IGV) rose 1.8%. VanEck Vectors Semiconductor ETF (SMH) rose 2%. AMD shares and Nvidia are leading SMH components.
The SPDR S&P Metals & Mining ETF (XME) rose 1.75% and the Global X US Infrastructure Development ETF (PAVE) increased by 0.6%. The US Global Jets ETF (JETS) rose 1.6%. SPDR S&P Homebuilders ETF (XHB) rose 1.6%. Energy Select SPDR ETF (XLE) jumped 3.4%. Financial Select SPDR ETF (XLF) rose 0.9%. Health Care Select Sector SPDR Fund (XLV) rose 0.8%.
ARK Innovation ETF (ARKK) reflects more speculative history stocks, jumping 2.8% and ARK Genomics ETF (ARKG) 2.6%. Both reached their lowest levels since July 2021 at Monday’s lowest levels during the day. The Tesla share is still the top holding across ARK Invest’s ETFs.
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AMD, Nvidia shares
AMD shares rose 4% on Tuesday, while Nvidia rose 1.5%, after both erased sharp Monday losses to close a little higher. Monday’s low target undermines the chip leaders’ low point in December, so if you squint, you can see what the basis for double bottom bases is. The middle of the potential W was set on December 28 for both AMD and Nvidia shares.
Double-bottom bases are often strong due to the large shift from fear to greed as the stock goes from reaching new lows to crashing past buy points. They are often formed as the broader market makes similar moves, with the Nasdaq index on its way back from new lows on Monday.
But AMD and Nvidia are far from actually having double-bottom bases, and even further from reaching decent buying points. If the market upturn worsens again, which is still very likely, AMD and Nvidia shares will probably sell out again.
Tesla vs. BID: Which Booming EV Giant is the best buy?
Tesla shares rose 0.6% to 1,064.30 on Tuesday, still below the 50-day limit. The EV giant also has a base with a double bottom, but now has a deep but valid handle, which gives it a buy point of 1,208.10. The handle was formed after the Tesla share increased early last week on delivery figures for the fourth quarter, and thus managed a then valid buy point of 1,119.10. But stocks gave up all these gains and more for the week when highly valued growth stocks plunged.
Tesla is also an example of why investors should not try to guess the double bottom. In early December, the TSLA stock fell below its recent lows and found support around the 50-day line. The stock then rose back for the next two sessions, as investors could begin to see a double-bottom base up. But the Tesla stock was then sold hard, and fell much lower until it reached a new low on December 21.
Apple shares rose 1.7% to 175.08, back above the 21-day line. On Monday, the AAPL stock found support on its 10-week line. This is the first 10-week withdrawal for Dow Jones technological titanium since the November eruption. The relative strength limit for Apple stocks is just below record levels, and holds up extremely well compared to other megacaps or technology stocks in general.
The ZIM share jumped 4.7% to 61.44, breaking past a buy point of 59.79 from a consolidation back to September in large volume.
On an IBD Digital or MarketSmith chart, the ZIM stock managed a high handle to set record highs. But that is because IBD adjusts for large dividends, and reduces stock prices before dividends accordingly. On an unadjusted chart, the ZIM stock hit a record 62.20 on September 16, with Tuesday’s move a break from a traditional handle.
The RS line for the ZIM stock is at record highs, as the shipping giant has outperformed the S&P 500 index.
The shipping giant’s earnings are expected to fall significantly in 2022 after soaring last year. But EPS is still well above the levels before 2021, with Zim Integrated Shipping committed to large dividends.
Market Rally Analysis
The rise in shares on Tuesday extended the decline from Monday’s lowest levels during the day, as Nasdaq undercuts its 200-day line for the first time since April 2020. The market was undoubtedly a reason to have positive actions, after being oversold by several indicators.
Forward stocks easily outperformed Nasdaq and NYSE on Tuesday.
But the market upswing is still under pressure. Nasdaq remains between its 200-day line and 50-days. Russell 2000 is still significantly below its 50- and 200-day lines. The S&P 500, meanwhile, regained its 50-day and 21-day averages. Dow is also above key levels.
The broader energy sector flourished on Tuesday. The economy is also continuing to do well. Bank revenues are about to get started, too JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (C) reporting Friday.
Stock charts for growth are still terrible overall.
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What to do now
The rise in shares is about to bounce, but it is too early to say whether Monday marked a bottom. Investors should be careful about buying stocks in today’s environment.
Very few growth or technology stocks seem capable of action, with a few possible exceptions such as Apple. Most likely need several weeks to recover, if not longer.
Investors can still add some exposure to energy and financial stocks, which continue to look strong. But most have already flashed early entries and done a lot of new things in the last couple of weeks. As long as crude oil prices and 10-year government interest rates remain high or continue to rise, these sectors should do well. However, if oil prices and returns decline significantly, these stocks may give up.
Right now, investors should focus on building their watch lists. Look for stocks with strong relative strength that find or regain key support. Pay attention to leading stocks in leading groups.
Read The Big Picture every day to stay in sync with the 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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