Dow Jones futures edged lower overnight, along with S&P 500 futures and Nasdaq futures, with an Apple iPhone event in focus on Wednesday. The ailing stock market recovery lost more ground as government interest rates rose.
The major indexes fell further from their 50-day moving averages. The Nasdaq extends its losing streak to seven days, undermining its late-June lows during the day.
It’s not a good time to add exposure, but investors should look for stocks with strong relative strength. Enphase Energy (ENPH), Ulta beauty (ULTA), Cigna (CI), Waste connections (WCN) and Waste management (WM) all have relative strength lines at 52-week highs. The RS line tracks a stock’s performance vs. S&P 500 index and is an easy way to discover leaders and laggards in all types of markets. An RS line that hits a new line when, or before, a stock breaks out is particularly bullish.
ENPH shares, Waste Connections and Ulta Beauty are flashing buy signals, although the market environment makes buying risky right now.
Enphase and WCN stocks are in the IBD 50. ENPH stocks are in the IBD Big Cap 20.
The video embedded in this article discussed Tuesday’s market action and analyzed Enphase, Sun run (RUN) and WCN stock.
Chinese EV startup Nine (NIO) and sporting goods retailer Academy sports and outdoor life (ASO) will report before Wednesday’s opening. The Nio share is struggling along with most of the electric car manufacturers in China. ASO stock is trying to hold support at its 50-day line. A strong bounce from that level could offer an early entry.
Apple iPhone event
apple (AAPL) will unveil the iPhone 14 and a new Apple Watch at a Wednesday event at 1 p.m. ET. The latest Apple iPhone is expected to boast incremental improvements – faster processor, better camera and improved battery life – versus revolutionary changes. Still, the new products are key for the Christmas shopping season.
Apple shares fell 0.8% to 154.53 after hitting resistance at the 50-day line. Shares fell below the 200-day and then the 50-day last week. The RS line for AAPL stock is not far from highs, but the market has weakened.
Dow Jones Futures today
Dow Jones futures declined relative to fair value. S&P 500 futures and Nasdaq 100 futures fell 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.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally
The share rally opened with modest gains, but the indices soon retreated. Despite a bounce during the day, stocks faded again.
The Dow Jones Industrial Average fell 0.55% in Tuesday’s trading. The S&P 500 index fell 0.4 percent. The Nasdaq composite lost 0.7 percent. The small-cap Russell 2000 gave up 0.9%.
The US crude oil price rose 1 cent from Friday’s near $86.88 a barrel. But that’s after being up 4% on Monday morning when OPEC+ unexpectedly cut production quotas a bit. Natural gas futures fell 7.3%, adding to Friday’s solid losses and continuing to pull back from 14-year highs. This despite Russia saying it will not restore the flow of natural gas to Europe unless sanctions are lifted.
The 10-year Treasury yield rose 15 basis points to 3.34%, approaching June’s 11-year high of 3.48%. The 10-year yield hit a recent low of 2.52% on August 2.
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.2%. The iShares Expanded Tech-Software Sector ETF ( IGV ) lost 0.8%. The VanEck Vectors Semiconductor ETF ( SMH ) fell 1.1%.
The SPDR S&P Metals & Mining ETF ( XME ) rose 0.7% and the Global X US Infrastructure Development ETF ( PAVE ) gained 0.2%. The Energy Select SPDR ETF (XLE) fell 0.9% and the Financial Select SPDR ETF (XLF) fell 0.2%. Health Care Select Sector SPDR Fund (XLV) rose 0.1%
ARK Innovation ETF ( ARKK ) reflected more speculative stock stocks, retreating 1.2% and ARK Genomics ETF ( ARKG ) 1.8%.
Top five Chinese stocks to watch now
High RS shares
Enphase stock jumped 4.9% in above-average volume, rebounding from its 21-day moving average and breaking the downtrend in a brief consolidation. Investors can buy ENPH shares here. It is a top stock in the No. 1-rated Energy-Solar group, with Array technologies (ARRY), Sun run (RUN) and Invesco Solar ETF (TAN) among those setting up. But any market rally can quickly be reversed.
ENPH stock may have a flat base on a weekly chart after this week.
ULTA shares rose 1.1% to 427.82, holding above a 417.08 double-bottom buy point. Shares in the beauty products retailer have struggled to close above an earlier buy point of 429.58. The ULTA share has been distance-bound for the past year.
Cigna shares fell 0.5% to 285.25, finding support around its 21-day moving average and just above its 10-week line. CI stock is just within range of a buy point at 273.67 first clear in early July. Shares in the health insurer are just above an alternative entry of 282.43. Cigna stock can work a three-week tight pattern, while a traditional base can take a couple more weeks.
The waste management stock rose 0.4% to 169.12. Shares hit 170.28 during the day, which exactly matches a still-valid consolidation buy point, according to MarketSmith. It also hits resistance at the 21-day moving average and a short downtrend. The WM share had three declines in volume above average last week.
Waste Connections stock broke the downtrend by a handle on Tuesday, making an early entry. But shares closed up 0.5% at 141.30, well off intraday highs. WCN stock has a buy point of 144.56 cup with handle. Other stocks in the highly rated Pollution Control group are doing well.
Market Rally Analysis
The Nasdaq has now fallen for seven straight sessions. So has the Russell 2000. The Dow Jones and S&P 500 have just one day up in that stretch. Everyone is starting to lose sight of the 50-day moving average.
The market is undoubtedly due for a bounce. But that wouldn’t make much sense.
The major indices regaining their 50-day and 21-day lines would only be a first step. The 200-day moving average would be the true hurdle.
The 10-year Treasury yield jumped once again, near long-term highs and racing higher since early August. It is difficult for stocks to withstand higher government interest rates, especially when it also pushes the dollar higher.
Solar energy and pollution stocks are among the leaders. Health insurance companies, energy stocks and biotech companies are doing relatively well.
Time the market with IBD’s ETF market strategy
What to do now
Investors should have minimal exposure and not look to add much exposure, if any. If you haven’t scaled down much in the last couple of weeks, look to take profits or cut losses.
Staying mostly on the sidelines until there are real signs of market strength can mean missing out on some buying opportunities, some of which could work well. But if the market really has legs, there will be many chances to make money. If the market moves up and down or sells out, a high cash balance will be key.
If you can’t resist taking a position in, say, ENPH shares or Waste Connections, be aware of the increased risk with the market struggling and the key indices facing multiple resistance areas.
Enphase Energy and other solar names are worth watching. So are stocks with strong relative strength in general. That’s where the next round of potential leaders will likely be. So build your watchlists with high RS shares.
But in a tough market, relative winners can be absolute losers.
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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