Dow Jones Futures: Market Rally Retracts on Economic Data, ‘Hurricane Dimon’
Dow Jones futures fell slightly overnight, along with S&P 500 futures and Nasdaq futures. The rise in the share price withdrew on Wednesday as hot labor data increased the prospect of larger interest rate increases, while JPMorgan’s Jamie Dimon warned of an economic “hurricane”. The large indices reduced losses somewhat as the Federal Reserve saw lower growth in large parts of the United States
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Lithium producers Albemarle (ALB) and Livent (LTHM) plunged while agriculture plays such ADM (ADM) and Bunge (BG) fell solid after bullish move on Tuesday.
On the upside, energy stocks continued to do well, with LNG games Golar LNG (LNG) and Excelerate energy (EE), a recent IPO, flashing buy signals. Callon Petroleum (CPE) shot up to near a point of purchase, and continued to race from the bottom of a V-shaped cup base. However, all three are volatile.
Printer and PC giant HP Inc. (HP) rose 3.9% to 40.34, a record close, after better-than-expected earnings late Tuesday. The HP stock cleared a draw-the-line 39.81 early entry that is also in line with the top of a previous base.
Meanwhile, megacaps are not leading the market upturn. However, the Microsoft stock is the only one approaching the 50-day line apple (AAPL) and Google parent Alphabet (GOOGL) is moving close to its descending 50-day lines. Tesla (TSLA) fell 2.4% on Wednesday. The TSLA stock, after last week’s big upswing, hits resistance at its 21-day exponential moving average.
Data storage is played NetApp (NTAP) and Clean storage (PSTG) reported earnings late Wednesday, along with Hewlett Packard Enterprise (HPE) and software vendors MongoDB (MDB) and Veeva Systems (VEEV). NetApp, Pure Storage, MongoDB and Veeva rose in expanded trading on strong results, while HPE fell after some shortcomings. Everyone is considerably worse.
The Albemarle stock is on the IBD Leaderboard. Microsoft (MSFT) and Google stocks are long-term IBD leaders. Callon Petroleum and BG shares are at IBD 50, with CPE chosen as Wednesday’s IBD 50 share to look at.
Dow Jones Futures today
Dow Jones futures fell 0.2% to fair value. S&P 500 futures and Nasdaq 100 futures fell 0.2%.
The price of crude oil fell 1 percent.
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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Financial data
The JOLTS survey in April showed that vacancies came in at 11.4 million, in line with views. It is not quite record high, but very close. Vacancies in March were revised up to 11.855 million from 11.549 million. People are ending at almost record levels, while layoffs reached new lows. The Federal Reserve clearly wants to see the labor markets soften. Maybe it started happening in May. But that was not the April JOLTS report.
The employment report for May must be submitted on Friday.
Meanwhile, the ISM manufacturing index rose to 56.1 in May from 55.4, defying the outlook for a slight decline to 54.5.
The Fed’s Beige Book report, published at 2:00 PM ET, showed that economic growth was cooling in several districts, with customers betraying at some high prices.
Atlanta Fed President Raphael Bostic returned to talk about a “break” in September. San Francisco Fed President Mary Daly does not see a break until the Fed Funds rate is around 2.5%. With the reference rate of 0.75% -1% now, this means at least three further half-point interest rate increases.
Finally, JPMorgan CEO Jamie Dimon warned of an economic “hurricane” coming our way. “It’s best you have to prepare,” he said at a finance conference. “JPMorgan is equipping us.” Dimon said the question is whether it will be a minor or major hurricane.
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Stock market rally
The stock market rally opened on Wednesday with solid gains, but the hot economic data and “hurricane Dimon” changed the climate quickly, and the large indices turned lower. The indices reduced losses in the afternoon, helped by the Fed’s Beige Book, but faded again.
The Dow Jones Industrial Average fell 0.5% in Wednesday’s trading session. The S&P 500 index fell 0.75%, and the ALB stock performed worst. Nasdaq composites fell 0.7 percent. Small-cap Russell 2000 gave up 0.6%.
The US crude oil price rose 0.5% to $ 115.26 a barrel. Petrol, diesel and natural gas futures showed much greater gains.
The 10-year government interest rate jumped nine basis points to 2.93% in the wake of the JOLTS report and the Fed comments. That’s after a pop of 10 basis points on Tuesday. Investors who have invested in half-point interest rate increases this month and in July are now pricing in a draw of 50 basis points also in September.
ETFs
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.15%, while the Innovator IBD Breakout Opportunities ETF (BOUT) rose 0.6%.
iShares Expanded Tech-Software Sector ETF (IGV) rose 0.6% as Salesforce.com (CRM) reported strong earnings and ServiceNow (NOW) raised guidance. The MSFT share is also a large IGV holding.
VanEck Vectors Semiconductor ETF (SMH) fell 1.6%.
The SPDR S&P Metals & Mining ETF (XME) and the Global X US Infrastructure Development ETF (PAVE) both fell 0.2%. US Global Jets (JETS) fell 3.1%. SPDR S&P Homebuilders (XHB) fell 1%. Energy Select SPDR ETF (XLE) rose 1.6% and Financial Select SPDR ETF (XLF) fell 1.6%.
ARK Innovation ETF (ARKK) reflected stocks with more speculative stories, fell 3.6% and ARK Genomics (ARKG) fell 3.4%. The Tesla stock is still number 1 across Ark Invest’s ETFs.
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Lithium shares cooled
The Albemarle share plunged 7.8% while the Livent share plunged 14%, and went below early buy points after solid losses on Tuesday. Earlier this week, Goldman Sachs called a peak in battery metals, and predicted a large drop in white-hot lithium prices in 2023.
The ALB share and Livent rose at the end of last week past important resistance levels when Nasdaq followed up. The movements were also a delayed reaction to Albemarle’s second guidance upwards of one month.
The ALB share found at least support at its 21-day moving average. On a monthly chart, the Albemarle and LTHM shares do not look so bad, given their huge rise in May. Maybe these stocks will form handles, but maybe not.
Everyone who bought these shares Thursday-Friday, even near the entry points, is sitting on modest to painful losses.
Agricultural stocks wither
The ADM stock fell 4.6% to 86.67, fell below the 50-day limit and wiped out several days of rising. On Tuesday, the ADM stock rose 2.1%, moving above the 50-day line and flashing an early entry. The Bunge share showed similar action on Tuesday with an increase of 3.1%. But it fell 3.6% to 114.10 on Wednesday, back below the 50-day limit.
Fertilizer stocks such as Mosaic (MOS), which had a strong rise on Tuesday, sold out on Wednesday.
Market Rally Analysis
The stock market rally suffered modest losses for a second consecutive session, from its lowest levels during the day, but faded again at the end. The Nasdaq continued to find support at its 21-day moving average.
One concern with the current market upswing is that there have not been many shares to buy. That situation has not improved, with some promising moves turning around, including LTHM stocks, ADM stocks and more. Drug makers have not broken down, but are not doing well this week.
Meanwhile, a number of stocks that were running again are struggling, including travel games such as Delta Air Lines (VALLEY).
Can many of these names recover if the market rises? Secure. In a positive scenario, the current market withdrawal may allow new handles and withdrawals to be formed. But right now, stocks are falling.
The only exception is oil and gas. This sector continues to do well overall, with some stocks in or near points of purchase. But these names are subject to fleeting actions.
Growth names remain severely damaged, with recurring government interest rates again a concern. Although the market upturn is showing lasting force and Microsoft, Google and Apple shares are coming into shape, it is unclear whether these megacaps will pass in the foreseeable future.
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What to do now
If you took on limited exposure on Thursday or Friday, you may not have been so badly injured and may still be up. But if you went in more aggressively and continued to increase inventory on Tuesday, you could have taken some unpleasant losses. This is especially true if you have purchased more volatile names.
Remember that if you are going to be aggressive when you come in, you have to be aggressive when you scale out again.
Yes, it is possible you sell positions and then the shares and the market will quickly recover. But if that’s the case, you can buy back those bets – or something better. There is a smaller cost of protection against a much steeper sale.
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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