Dow Jones futures tipped higher overnight, along with S&P 500 futures and Nasdaq futures with a major inflation report in print on Friday.
The stock market upturn suffered significant losses on Thursday, with the large indices undercutting important short-term support. Below the surface, conditions are even worse, with rejects rejecting winners and pimples not working.
With that in mind, Ulta beauty (ULTA), Dollar tree (DLTR) and Canadian natural resources (CNQ) is right around the pimples. All have relative strength lines at or near 52 weeks or record highs.
The ULTA stock has flirted with a buy point of 426.93 cup-with-handles, according to MarketSmith analysis. The stock eventually fell 0.7% to 422.35 on Thursday. The DLTR stock is close to a cup with handles, but also sits just above the 50-day line, so it can offer a little more security. The Dollar Tree stock has a buying point of 166.45, but a transition above Thursday’s high of 163.36 will provide a trend line entry. The stock fell 0.9% to 159.85. The CNQ share is not far above its 50-day line, and is part of the market-leading oil and gas area. The shares fell 2.4% to 66.65, close to a buy point of 69.56. Canadian Natural Resources was Thursday’s IBD Stock Of The Day.
Meanwhile, Fortinet (FTNT) rose 1% to 303.50, regaining just its 50-day line, driven by a 5-for-1 FTNT share split. Shares approached a 200-day intraday, but withdrew as market sales intensified. The network security manager is worth seeing, with its RS line going back to heights. The FTNT stock is in a messy consolidation and is far from traditional buying points. The Fortinet share is a long-term IBD leader. Investors can take a position in the FTNT stock as a long-term leader if it recovers its 200-day line decisively. But the recent gains have come at a low volume, while the current market climate is not encouraging.
Finally, Tesla (TSLA) fell 0.9% to 719.12. For a second straight session, the Tesla stock supported solid gains during the day, hitting resistance at the 21-day moving average. The TSLA share is a long way from being able to act.
China’s sales and production picked up again in May, while production from Tesla Shanghai is now back to full capacity. Meanwhile, the National Highway Traffic Safety Administration is expanding its autopilot probe to 830,000 Tesla EVs. The investigation started last year with a focus on autopilot accidents with emergency vehicles. NHTSA seeks to find out if autopilot undermines “the effectiveness of driver supervision.”
The video embedded in this article analyzed the market action and discussed the TSLA stock, Adobe (ADBE) and Quanta services (PWR).
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Consumer inflation report
The Ministry of Labor will release the consumer price index for May at 8:30 ET. Economists expect a jump of 0.7% compared to April, led by energy and food prices. The CPI inflation rate should fall for the second month in a row to 8.2% from April 8.3%. But it is not a noticeable decline, and it is possible that the total inflation reading will pick up.
Core prices should climb a solid 0.5% month-on-month. Core inflation is expected to decline to 5.9% from April 6.2%.
The Federal Reserve wants to see inflation fall sharply, with labor markets cooling enough so that wage pressures do not keep inflation too high.
Dow Jones Futures today
Dow Jones futures rose 0.2% relative to fair value. S&P 500 futures rose 0.1% and Nasdaq 100 futures rose.
The CPI inflation report is guaranteed to fluctuate Dow Jones futures and government interest rates before Friday’s opening clock.
Keep in mind that overnight trading in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join IBD experts as they analyze powerful stocks in the stock market rally on IBD Live
Stock market rally
The stock market rise was mixed on Thursday morning, but sales picked up, especially in the late afternoon.
The Dow Jones Industrial Average fell 1.9% in Thursday’s trading session. The S&P 500 index fell 2.4 percent. Nasdaq composites fell 2.75%. Small-cap Russell 2000 withdrew 2.3%.
Flex LNG (FLNG), Amphastar Pharmaceuticals (AMPH) and TimkenSteel (TMST) continued to fall on Thursday in crucial failure to break out of a new base. Vertex Pharmaceuticals (VRTX), which tried to break out on Wednesday, fell below its 50-day line on Thursday, but is not destroyed yet. Nor is it Atkore (ATKR), which broke out on Friday and increased gains on Monday, before falling below the point of purchase on Thursday.
The US crude oil price fell 0.5% to $ 121.51 a barrel, still right at the three-month high. Natural gas prices rose 3% after falling during the day after Wednesday’s solid decline.
The 10-year government interest rate increased by 1 basis point to 3.04%. The European Central Bank said on Thursday that it is set to start raising interest rates in July.
Among the best ETFs, Innovator IBD 50 ETF (FFTY) fell 3.6%, while Innovator IBD Breakout Opportunities ETF (BOUT) lost 2%. iShares Expanded Tech-Software Sector ETF (IGV) fell 3.1%, with the FTNT stock an IGV share. VanEck Vectors Semiconductor ETF (SMH) gave up 2.7%.
SPDR S&P Metals & Mining ETF (XME) sold 4.8% and Global X US Infrastructure Development ETF (PAVE) retreated 2.1%. US Global Jets ETF (JETS) fell 3.4%. SPDR S&P Homebuilders ETF (XHB) fell 0.5%. Energy Select SPDR ETF (XLE) lost 2.2% and Financial Select SPDR ETF (XLF) fell 2.5%. Health Care Select Sector SPDR Fund (XLV) closed down 2.3%.
ARK Innovation ETF (ARKK) reflects more speculative history stocks, fell 6.1% and ARK Genomics ETF (ARKG) 5.65%. The TSLA share is still number 1 across Ark Invest’s ETFs.
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Market Rally Analysis
The stock market rise had its worst day in several weeks. The major indices closed below their 21-day moving average for the first time since the end of May and underwent their low intraday levels in June.
Nasdaq saw higher volumes, marking its second day of distribution in a row. Thursday was also a distribution day for the S&P 500 and the Dow Jones, when the NYSE volume also picked up.
But wait, there’s more! The market upturn is much weaker than the large indices indicate.
Russell 2000 and the S&P MidCap 400, which rose above the 50-day lines on Tuesday, fell back on Wednesday and fell sharply on Thursday, below their 21-day lines.
The weakness in small caps and mid caps is a good proxy for the market width, which was miserable on Thursday. Decliners led the winners almost 3-to-1 on the Nasdaq and with 4-to-1 on the NYSE.
Outside the oil and gas area, market action is deteriorating. Shares in sea-going shipping have plummeted, joining the weaknesses in shipping in general. Metals and miners are melting again. Agricultural plays do not show green shoots. Drug stocks and tools such as VRTX stocks, Pfizer (PFE) and Exelon (EXC), after holding up reasonably well, had a tough session.
Leading stocks do not work well. Oil and gas stocks are doing well overall, but even that sector is seeing large volatile movements, with LNG-related stocks such as FLNG stocks plummeting over the past few days. More generally, outbreaks fail, often dramatically.
On the downside, the next big level is to look at Nasdaq’s follow-up day on 26 May. A close below the lowest FTD level would be a very bad sign for the market upturn.
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What to do now
The rise in shares shows many worrying signs. Of course, it is possible that the current trend will increase revolutions when the Inflation Report and the Fed meeting are in the past. But these events can also be catalysts for sharper sales.
Investors must use risk management. Although the market rally will soon pick up again, this does not mean that recent failed outbreaks will suddenly be revived and lead the way.
The current market action is helping to create bases and handles, so investors should update their watch lists with new additions and deletions. Ulta Beauty, Dollar Tree and Canadian Natural Resources may already be on your lists, while FTNT shares may be one to slip back on.
But keep the exposure light on until conditions improve. Taking quick partial profits and cutting losers quickly is important.
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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