Dow Jones futures rose slightly early Wednesday, along with S&P 500 futures and Nasdaq futures. CrowdStrike (CRWD) rose overnight on earnings. Tesla shares fell after an analyst downgrade.
Stocks rallied saw serious losses after Fed Chair Jerome Powell said policymakers are “prepared to increase the pace of rate hikes.” The S&P 500 broke through its 21-day moving average and broke below its 50-day line.
Tesla (TSLA) fell below a key level, but there could still be constructive action. Technical titans apple (AAPL), Microsoft (MSFT) and Google parent Alphabet ( GOOGL ), which were modest winners on Monday, gave up those gains on Tuesday.
Many leaders held up reasonably well, although others took a bit more damage. Delta Air Lines (VALLEY), New relic (NEW) and Canadian Solar Energy (CSIQ) flirted with buy signals as their respective groups performed well.
Investors should be cautious about new purchases in the very short term and may want to reduce their overall exposure somewhat.
The video embedded in this article discussed Tuesday’s market action and analyzed DAL shares, Canadian Solar and Freeport-McMoRan.
DAL stock is at the IBD Big Cap 20. New Relic was Tuesday’s IBD Stock Of The Day.
Fed chief Powell
Citing stronger economic data, Fed chief Jerome Powell said “the final level of interest rates is likely to be higher than previously expected.” Markets had already priced in higher rates than the Fed’s end-2022 forecast for a peak rate of around 5.1%.
But Powell also signaled that he is open to accelerating Fed rate hikes again. “If the totality of the data should indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
That puts even more pressure on Friday’s February jobs report, as well as next week’s CPI inflation report.
The odds of a 50 basis point Fed rate hike on March 22 rose to 70.5%, up from 31% on Monday and 24% a week earlier.
CRWD stock rose solidly after CrowdStrike earnings beat and the cybersecurity play gave bullish guidance. CrowdStrike shares fell 2.1% in Tuesday’s session to 124.93, up sharply over the past two months but still well below the 200-day mark. Octa (OKTA), Palo Alto Networks (PANW) and Fortinet (FTNT) has looked stronger.
SoundHound AI ( SOUN ) fell sharply on a smaller-than-expected Q4 loss and revenue growth that barely hit. The AI game provided in-line earnings guidance for 2023. SOUN stock rose 2.15% to 3.33 on Tuesday. SoundHound stock is working on a 5.04 buy point from a consolidation mostly formed above the 200-day line.
Dow Jones Futures today
Dow Jones futures rose 0.1% relative to fair value. S&P 500 futures rose 0.1% and Nasdaq 100 futures rose 0.25%.
The 10-year Treasury yield was flat at 3.97% after peaking 4% overnight.
Investors will get the ADP Employment Report at 8:15 a.m. ET, which provides an estimate for February private payrolls. But the ADP report has an uneven view of forecasts for the Labor Department’s jobs report. The work report for February must be delivered on Friday.
The JOLTS survey at 10 a.m. ET will reveal vacancies starting in January.
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
Stocks started Tuesday slightly higher, but fell sharply after Fed Chair Powell’s hawkish testimony at 10 a.m. ET.
The Dow Jones Industrial Average fell 1.7% in Tuesday’s trading. The S&P 500 index fell 1.5 percent. The Nasdaq composite gave up 1.25%. The small-cap Russell 2000 retreated 1.2%.
Apple shares fell 1.45%, essentially erasing Monday’s gains. Intraday Monday, AAPL stock hit 156.30, nearly reaching a buy point. Microsoft fell 1.1%, more than offsetting Monday’s subdued 0.6% gain. Apple and Microsoft shares are components of the Dow Jones, S&P 500 and Nasdaq.
The S&P 500 and Nasdaq giant GOOGL shares fell 1.4%, back to the 50-day line.
The 10-year Treasury yield actually fell 1 basis point to 3.97%. But yields rose for short-term government bonds, which are more closely tied to Fed policy. The 2-year yield rose 12 basis points to 5.01%. Six-month Treasury bills rose 17 basis points to 5.29%.
Meanwhile, the US dollar soared on Powell’s hawkish testimony and generally higher government interest rates, hitting its highest level since late November.
US crude oil prices fell 3.6% to $77.58 a barrel. Fed concerns about interest rate hikes, a stronger dollar and weak imports from China weighed on crude oil. Copper prices fell 2.8% for similar reasons.
Among growth ETFs, the Innovator IBD 50 ETF ( FFTY ) was down 0.6%. The iShares Expanded Tech-Software Sector ETF ( IGV ) gave up 1.%, with MSFT stock a large holding. VanEck Vectors Semiconductor ETF (SMH) retreated 1.2%
Mirroring more speculative stock stocks, the ARK Innovation ETF ( ARKK ) gave up 1.7% and the ARK Genomics ETF ( ARKG ) 1.1%. Tesla stock remains a large holding across Ark Invest’s ETFs.
The SPDR S&P Metals & Mining ETF ( XME ) fell 2.85%. The US Global Jets ETF (JETS) rose 0.65%, with DAL stock a notable holding. The SPDR S&P Homebuilders ETF (XHB) was down 1%. The Energy Select SPDR ETF (XLE) fell 1.7% and the Financial Select SPDR ETF (XLF) fell 2.6%. The Health Care Select Sector SPDR Fund (XLV) returned 1.6%.
Top five Chinese stocks to watch now
Tesla shares fell 3.15% to 187.71, back below the 21-day moving average and the lowest close in a month. The EV giant has an aggressive buy point at 217.75, but investors should probably wait for a decisive move above the 200-day mark. The 200-day line is around 220 and drifting lower. An extended break would bring down the 200-day line in the recent consolidation and allow the 50-day line to catch up.
On Tuesday, China EV registration data showed rising Tesla sales there for the second straight week. But Tesla’s China deliveries are still down in the first quarter compared to Q4, despite big price cuts.
Berenberg downgraded Tesla stock to hold from a buy, saying the share price has returned to a fair value. The analyst said Tesla price cuts will hit gross margins in the short term, but still sees high margins in the long term.
Tesla shares lost a fraction before the open.
Market rally analysis
The stock rally reacted poorly to Fed chief Jerome Powell’s hawkish remarks and the prospect of faster rate hikes and higher interest rates.
The S&P 500 fell below its 21-day moving average and just below its 50-day line. The Nasdaq Composite fell through its 21-day line.
The Dow Jones, which hit resistance at the 50-day line on Monday, fell sharply on Tuesday.
Tuesday’s loss followed a generally negative session on Monday. Big-cap indexes erased gains that day, but held up relatively well thanks to Apple shares, Google and Microsoft. But losers trumped winners nearly 2-to-1.
The Russell 2000, which fell below the 21-day line on Monday, fell to just above the 50-day line on Tuesday. The small company index had its worst closing since the end of January.
Most leading stocks have fallen along with the overall market. Shares that looked promising on Monday morning have come back somewhat.
Miners like FCX shares stumbled on Tuesday on the stronger dollar and worries about China’s economy. But in general, leading stocks haven’t suffered too much damage yet.
DAL shares and other airlines look healthy, along with many travel names in general. CSIQ stock is hovering at a buy point with several solar names trying to shine. The NEWR share is consolidating well. Tesla stock may need a longer break, but is still performing relatively well.
With the 10-year Treasury yield near 4%, short-term interest rates topping 5% and the dollar rising, it’s understandable that the stock market rally has some problems.
Friday’s jobs report and next week’s CPI inflation report could lock in expectations of a half-point rate hike at the Fed this month. As Tuesday’s selloff showed, it’s the market reaction that matters, not the news.
The S&P 500 is barely holding the 50-day line and not far from testing the 200-day again. The Nasdaq and Russell 2000 could easily break below major levels as well. On the upside, a move above Monday’s intraday highs would break short-term trend lines for the S&P 500, Nasdaq and Russell.
Time the market with IBD’s ETF market strategy
What to do now
Just when the stock market rally seems to be picking up again, negative news brings it down again. Is this a short-term lull within a trading area or the start of something more serious? It didn’t take much to trigger severe weakness or renewed strength.
So investors need to be prepared and ready to act.
It is probably best to wait to buy until there is more clarity. Not many stocks flashed new buy signals on Tuesday anyway. Instead, investors may consider exiting or trimming recent positions if they are not working.
Keep working on your watchlists. The range-bound market is difficult to play, but many new bases and bullish pullbacks are also taking shape.
Read The Big Picture every day to stay in sync with market direction and leading stocks and sectors.
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