Dow Jones Futures Rise Ahead of CPI Inflation Report; Flights from US airlines on the ground

Dow Jones futures rose slightly early Wednesday, along with S&P 500 futures and Nasdaq futures. US domestic flights were grounded due to an FAA error. WWE, Wells Fargo, Axcelis Technologies and Impinj were also in focus before the opening.

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Stocks were indecisive for much of Tuesday, but the major indexes gained momentum and the S&P 500 moved past its 50-day moving average. Investors await the December CPI inflation report on Thursday morning.

Medpace (MEDP) rallied solidly on Tuesday, flashing another buy signal after a similar move picked up at the end of 2022. First Solar (FSLR) bounced back from its 50-day line, also making an early entry. But ELF beauty (ELF) and Super micro computer (SMCI) fell after Monday’s reversals.

The MEDP share and ELF Beauty are on the IBD Leaderboard. SMCI stock is on the IBD 50. Medpace was Tuesday’s IBD Stock Of The Day.

Tesla (TSLA) and UnitedHealth (UNH) edged lower, as many major internationals continue to struggle.

Investors should be cautious, especially with the CPI inflation report approaching.

Business news

The FAA suspended all domestic flights until 9 a.m. ET due to a significant system outage. Flights have been disrupted since early Wednesday morning. The FAA expects to “repopulate” the system soon, but airlines will have to move to get back on schedule. Airline shares included Delta Air Lines (DAL) and United Airlines (UAL) edged down.

Vince McMahon is once again chairman at World Wrestling Entertainment (WWE), after daughter Stephanie stepped down as chairman and co-CEO on Tuesday night. Mr. McMahon, a major shareholder, resigned last year over payments related to allegations of sexual misconduct. WWE stock rose solidly in premarket trading, having rallied in recent days on reports of his expected return to lead a selloff of the company.

Meanwhile, Wells Fargo (WFC) will largely exit the mortgage business amid regulatory pressure, CNBC reported late Tuesday. It will only offer mortgages to existing banking and asset management customers and borrowers in minority communities. WFC shares were little changed in extended trading.

Axcelis Technologies (ACLS), which has made a strong move in recent sessions, said revenue for the fourth quarter to the end of December topped $250 million vs. the chip equipment maker’s previous guidance of $232 million to $240 million. ACLS stock rose after hours.

Imp (PI) says fourth-quarter sales exceeded $76 million vs. The RFID chip maker’s previous guidance of $71.5 million-$73.5 million. PI stock, already slightly above the 50-day line, rose solidly overnight. It could offer an early entry or come close to Impinj stock’s flat buy point. PI stock is also on the Leaderboard.

Earnings season also starts to pick up late in the week. Taiwan Semiconductor (TSM) reports on Thursday morning. On Friday, JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C) and Wells Fargo all report ahead of the open, along with Delta Air and UnitedHealth.

Dow Jones Futures today

Dow Jones futures rose 0.2% relative to fair value. S&P 500 futures rose 0.2% and Nasdaq 100 futures rose 0.2%.

The 10-year government yield fell 4 basis points to 3.58%.

Crude oil futures rose despite the American Petroleum Institute estimating a huge weekly jump in US inventories. The Energy Information Administration will release data for U.S. crude oil and petroleum products at 10:30 a.m. ET.

Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session.

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Stock market rally

After Monday’s disappointing fade, the stock market rally strengthened on Tuesday afternoon, closing near session highs.

The Dow Jones Industrial Average rose 0.6% in Tuesday’s trading. The S&P 500 index rose 0.7 percent. The Nasdaq composite rose 1%. Small-cap Russell 2000 rose 1.5%

Tesla shares fell 0.8% on Tuesday after jumping 5.9% on Monday. Shares turned higher on Friday after setting a bear market at 101.06 after the electric car giant announced big price cuts in China and other key Asian markets. TSLA stock needs a lot of repair.

The stock rose 2% before Wednesday’s open. Tesla has applied to Texas for a major expansion of its Austin assembly plant, the Austin Business Journal reported late Tuesday. Tesla Austin is still ramping up to its existing capacity.

UNH shares fell 0.8%, hitting their worst levels since June last year. The Dow Jones health insurer has fallen 8.3% already in 2023, after finishing 2022 in reasonably good shape. UnitedHealth’s earnings and guidance Friday will be important for the suddenly exposed sector.

US crude oil prices rose 0.7% to $75.12 a barrel. Natural gas prices fell 6.9 percent.

The 10-year Treasury yield jumped 10 basis points to 3.62% after cutting 20 basis points in the previous two sessions.

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ETFs

Among growth ETFs, the Innovator IBD 50 ETF ( FFTY ) rose 1.1%, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) rose 0.15%. The iShares Expanded Tech-Software Sector ETF ( IGV ) gained 0.1%. VanEck Vectors Semiconductor ETF ( SMH ) rose 1.3%, just topping the 200-day line after clearing the 50-day on Friday. The TSM share is a large SMH holding.

Reflecting more speculative storied stocks, the ARK Innovation ETF ( ARKK ) jumped 2.5% and the ARK Genomics ETF ( ARKG ) 3.6%. The Tesla share is still a large stake in Ark Invest, and Cathie Wood has strengthened her position in recent weeks.

The SPDR S&P Metals & Mining ETF (XME) rose 2.5% and the Global X US Infrastructure Development ETF (PAVE) rose 1.6%. The US Global Jets ETF (JETS) rose 2.4%, with DAL shares among the notable holdings. The SPDR S&P Homebuilders ETF (XHB) rose 1%. The Energy Select SPDR ETF (XLE) rose 0.7% and the Financial Select SPDR ETF (XLF) rose 0.6%. The Health Care Select Sector SPDR Fund ( XLV ) closed up 0.8%, with UNH stock as a top XLV holding.

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Market rally analysis

The market rally spent much of the morning around break-even, but ended Tuesday with a relatively strong development.

The S&P 500 rose above the 50-day line. The 200-day average is modestly above that.

The Dow Jones rebounded from a test of the 50-day line after moving above that key level on Friday. The Nasdaq rose from its 21-day line with the 50-day line not far behind.

The Russell 2000 is back above the 50-day line, just below the 200-day.

The S&P MidCap 400 rose on Tuesday after finding support at the 50-day. That’s after jumping above its 21-day, 50-day and 200-day lines on Friday. The Invesco S&P 500 Equal Weight ETF (RSP) looks pretty similar.

RSP and MidCap 400 highlight how large caps such as e.g apple (AAPL), Tesla and UNH shares have weighed on the market.

A sustained stock market rally may not take hold until there is clarity on when the Federal Reserve will stop raising interest rates. Markets strongly expect only a quarter-point increase at the February 1 policy meeting and again at the end of March.

Thursday’s CPI inflation report could lock in expectations of a quarter-point increase. Inflation should continue to trend lower in the coming months, if only because year-on-year comparisons are so steep.

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Leading stocks mixed

A number of leading stocks have flashed buy signals in recent days and weeks. But most have quickly faltered. In some cases, such as MEDP stocks, they bounce back a few days later.

Medpace jumped 5.9% to 223.29 on heavy volume, rebounding from its 50-day line and clearing its Dec. 29 high, as MEDP tried to pull out.

First Solar rose 7.4% to 171.01, continuing a mini-winning streak. The move from the 50-day line offered an early entry into a new base, but now looks a bit extended. But the official buy point of 173.78 is not far away.

Other names continue to tumble.

ELF shares had a promising breakout on Friday, but gave up most of those gains on Monday and plunged 8.3% on Tuesday to 51.15, below the 50-day mark and undercutting the lowest part of the flat base.

SMCI shares rose Monday morning, making an early entry but closing only fractionally higher. On Tuesday, shares were down 7.55%, below the 50-day mark, following a short-seller report.

Many other stocks hover right around potential buy points.

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What to do now

The stock rally is still in force, but the major indices, sectors and especially leading stocks are exposed to reversal. Thursday’s CPI inflation report could spark big gains, with the major indexes pushing decisively above some key levels. But it can also go the other way.

Investors should be careful with their exposure and be wary of new purchases, especially before the CPI report.

If you are making new purchases, know your exit strategy before you enter. Consider taking partial profits quickly to lock in some gains.

This is still a window-shopping market. But there are many exciting stocks to watch from a number of sectors. Get those watch lists ready.

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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