Dow Jones futures open Sunday night, along with S&P 500 futures and Nasdaq futures, with the upcoming Fed meeting in focus.
The major indices sold hard at the end of last week, falling below key levels while recent eruptions failed dramatically. The Nasdaq plunged Friday to close below the lowest of the May 26 follow-up day, a very bearish signal. The current trend was already “under pressure” after Thursday’s sale.
NetEase (STATEMENT), Northrop Grumman (NO C), Eli Lilly (LLY), Albemarle (ALB) and Onsemi (ON) shows all relative strength near buy points.
These are worthy of your watch lists, but investors should be wary of any new purchases and instead reduce their current exposure.
Albemarle, Northrop and LLY shares are on the IBD Leaderboard, with ON shares on the Leaderboard watch list. The NTES share and Eli Lilly are on IBD 50. The video built into this article discussed the market action in detail, at the same time as the NOC share, Onsemi and Albemarle were analyzed.
Meanwhile, megacap growth stocks still show no leadership. apple (AAPL), Microsoft (MSFT), Google parent Alphabet (GOOGL), Metaplatforms (META), Amazon.com (AMZN) and Nvidia (NVDA) suffered all serious losses, with GOOGL shares, Amazon and Nvidia all reversing lower from their 10-week lines. Tesla (TSLA) had a relatively modest 1% weekly decline. But the TSLA stock closed almost weekly lows after meeting resistance on its 21-day line several times.
Late Friday, Tesla announced plans to split the TSLA share 3-for-1, subject to shareholder approval at the August 4 annual meeting. The EV giant had signaled plans for a new share split back in March. Tesla shares rose 1.8 percent late Friday.
Oracle’s chairman and co-founder Larry Ellison will also not seek re-election to Tesla’s board.
Oracle (ORCL) reports Monday night, with Adobe (ADBE) is due late Thursday. The software giants will provide some insight into the company’s IT expenses. But the ORCL stock and Adobe are in deep downward trends.
Tesla’s new Frenemy grabs the EV crown
The Federal Reserve meets on Tuesday and Wednesday. The Fed will announce its latest rate hike at 2pm ET on Wednesday, followed by a press conference for Fed chief Jerome Powell at 2.30pm ET.
A major trigger for the sale of the stock market is the fear for investors that the Fed’s policy makers will have to be much more aggressive in order to limit price pressure, which increases the risk of a recession. After the CPI report showed that inflation unexpectedly rose to a new 40-year high of 8.6%, the markets now expect movements of 50 basis points at the next four Fed meetings, through November.
But there are some calls on Wednesday for the Fed to raise interest rates by 75 basis points on Wednesday. The markets price in a small, but not small chance of a supersize interest rate increase in the Fed.
That would be a big surprise. Fed chief Powell has tended to telegraph monetary policy well in advance. Fed officials have not indicated that a three-quarter point move was likely. In fact, Powell said after the meeting in early May that 75 basis points was not something that politicians “actively considered.”
An alternative would be for the central bank to stick to an interest rate increase of half a point this week, but with Fed chief Powell signaling that 75 basis points are on the table at the end of July.
Dow Jones Futures today
Dow Jones futures open at 6pm ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
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 the market and discuss watchdog-worthy stocks on IBD Live
Stock Market Review
The stock market started the week within a recent area, but broke below these levels on Thursday with even greater losses on Friday.
The Dow Jones Industrial Average fell 4.6% in last week’s trading. The S&P 500 index fell 5.1 percent. The Nasdaq composite plunged 5.6 percent. Small-cap Russell 2000 gave up 4.5%.
The 10-year government interest rate jumped 20 basis points to 3.16%, and rose to the highest level since the end of 2018. The 2-year government interest rate, more closely linked to the Fed interest rate movements, soared to 3.07%, up 25 basis points on Friday alone. The flattening yield curve emphasizes fear of stagflation.
US crude futures rose 1.5 percent to $ 120.67 a barrel, its seventh consecutive weekly rise.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 5.3% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) retreated 4.4%. iShares Expanded Tech-Software Sector ETF (IGV) rolled back 5.9%, with Microsoft, Adobe and ORCL shares all notable holdings. VanEck Vectors Semiconductor ETF (SMH) plunged 7.4%, with the Nvidia stock a major component.
SPDR S&P Metals & Mining ETF (XME) melted down 4.45% last week. Global X US Infrastructure Development ETF (PAVE) reversed 5.6% down. US Global Jets ETF (JETS) fell 7.2%. SPDR S&P Homebuilders ETF (XHB) fell 5.8%. Energy Select SPDR ETF (XLE) fell 0.8% and Financial Select SPDR ETF (XLF) fell 6.8%. Health Care Select Sector SPDR Fund (XLV) declined 3.3%. The LLY stock is a large XLV stock.
ARK Innovation ETF (ARKK) reflected more speculative history stocks, falling 7.1% last week and ARK Genomics ETF (ARKG) 8.4%. The Tesla stock is still a top stock across the Ark Invest ETFs.
Five best Chinese stocks to see now
Stocks to see
NetEase warehouse, together with electric car manufacturers BYD (BYDDF) and Li Auto (LI), is among the most beautiful US listed Chinese companies, as these names have accumulated in recent weeks due to optimism. The NTES share rose 1.8% to 105.65 on Friday. The stock reached 108.77 during the day, breaking short above a buy point of 107.25 as well as important resistance levels just above 108. The mobile gaming giant is in a major consolidation back to the end of November or February 2021. The relative strength of the NTES stock is at 52 weeks height.
Chinese stocks are picking up again after easing Covid restrictions and internet crashes, but that could change quickly. If you use Chinese stocks as a “safe haven”, it is not a good market.
NOC shares fell 3% to 463.82 last week, but found support on their 50-day line on Friday. Shares in the defense giant managed a buy point of 477.36 cup-with-handle on June 3, but fell back during this listing on June 8. Nevertheless, the RS line for the Northrop share is at a high level.
The LLY stock fell 1.5% last week to 297.01, but fell 3.3% on Thursday and 2.1% on Friday, closing below the 50-day line. The shares managed a buy point of 314.10 on a flat basis on 27 May, but fell back the following session. The RS line for the Eli Lilly stock is still close to highs. But Eli Lilly has to fight hard just to keep the support, despite still bullish data on a likely blockbuster obesity.
The ALB share fell 5.5% to 236.87 last week. The shares of the lithium giant are back below an early entry around 248. The Albemarle share now has a handle that fits the cup base, giving it an official buy point of 273.78, according to MarketSmith analysis. Investors may use 259.97, just above Wednesday’s high, as a new early entry. At least on a weekly chart, it appears that the ALB share will be tightened somewhat. A longer handle will allow more time for the moving average to catch up.
The ON share fell 4.45% to 60.14 last week, and found support on Friday on the 21-day line. On a weekly chart, the chipmaker now has a handle with a buy point of 67.29. The top of the handle is roughly in line with a trend line of falling peaks from the top of January 5th. A longer handle will allow some time for the moving average to catch up.
The stock market started the week by staying within a tight range, with the large indices continuing to find support at the 21-day moving average. Russell 2000 and the S&P MidCap 400 both moved over their 50-day lines on Tuesday.
On Wednesday, the major indices had a similarly calm day, but it was a turning point. A series of promising eruptions began to fail, often in spectacular ways. Offshore shipping stocks plunged, while several other sectors fell. Russell 2000 and S&P MidCap fell below their 50-day lines.
The sale of leading shares continued on Thursday, while the key indices broke below their 21-day lines. The action in the major indices and the leading stocks triggered a move to “uptrend under pressure” after Thursday’s action.
On Friday, after the shock CPI inflation report, the large indices sold hard again.
The Nasdaq composite closed during the lowest of the May 26 follow-up day. This is important because research by Eric Krull shows that when indices do this, there is a 90% chance that the market will eventually undermine its lowest levels.
The S&P 500 and Dow closed well below their May 26 lows. However, these indices never arranged follow-up days. The S&P 500 marked its worst closure in 14 months.
As bad as the big indices look right now, the action of the leading stocks is even worse
Energy stocks are the one sector that has held up well in 2022, but LNG games were big losers in the last week. Other potential leading sectors, including metals, shippers, travel companies and chemical companies have all suffered significant losses.
Growth stocks, with Onsemi a rare exception, look terrible right now. It is unclear whether AAPL shares, Microsoft or Tesla will be market leaders for a while. It is clear that they are not market leaders right now.
Time market with IBD’s ETF market strategy
What to do now
There is a high risk that the major indices will break below the recent lows, triggering a new chapter in bear market history.
Investors should reduce their exposure. Market action, especially in leading equities, has been weak. If you have stocks that work, you can choose to hang on to them. But given the market shift and the sharp, sudden sales of many other top stocks, investors may at least consider taking a partial profit.
Investors should revise their watch lists again. With many chart patterns damaged or broken, focus on stocks with strong relative strength, such as Northrop, Lilly and Albemarle. It may be a good time for charts to reshape.
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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