Dow Jones futures were little changed early Wednesday, along with S&P 500 futures and Nasdaq futures. CrowdStrike (CRUD) accumulated overnight in revenue. Tesla shares fell slightly on analyst downgrades and a new security review.
The stock market rally saw sharp losses after Fed Chair Jerome Powell said policymakers are “ready to step up the pace of rate hikes.” The S&P 500 broke below its 21-day moving average and broke its 50-day line.
Tesla (D.S.L.A) has fallen below a critical level, but it may still be a constructive process. Tech titans Apple (AAPL), Microsoft (MSFT) and Google Parents letters (GoogleModest winners on Monday gave up those gains on Tuesday.
Several leaders were reasonably well positioned, while others sustained some more damage. Delta Air Lines (DAL), A new monument (New) and Canadian Solar (CSIQ) flirted with buy signals as their respective groups outperformed.
Investors should be wary of new purchases in the very short term and may want to reduce overall exposure.
The video embedded with this article discusses Tuesday’s market action and analyzes DAL stock, Canadian Solar and Freeport-McMoRan.
DAL has stock IBD Big Cap 20. New Relic was Tuesday’s IBD Stock of the Day.
Fed chief Powell
Citing strong economic data, Federal Reserve Chairman Jerome Powell said “the final level of rates will be higher than previously expected.” Markets are already pricing in higher rates than the central bank’s forecast for a peak rate of 5.1% in late 2022.
But Powell also signaled that the Fed is open to accelerating rate hikes again. “If the totality of the data indicates that faster tightening is needed, we will be prepared to increase the pace of rate hikes.”
That puts more pressure on Friday’s February jobs report and 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 ago.
CRWD stock rose solidly after CrowdStrike earnings beat and the cybersecurity play gave good guidance. CrowdStrike stock fell 2.1% to 124.93 in Tuesday’s session, having risen sharply in the past two months, but still below its 200-day line. Octa (OKTA), Palo Alto Networks (PANW) and Fortinet (FTNT) seems strong.
Soundhound AI (the sound) fell early on Wednesday due to a smaller-than-expected Q4 loss and earnings growth. The AI play provided in-line revenue 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 formed above the 200-day line.
Dow Jones Futures Today
Dow Jones futures lost a fraction and fair value. S&P 500 futures were lower and Nasdaq 100 futures were just above break-even.
The 10-year Treasury yield was at 3.97% after rising slightly to 4% overnight.
Investors will receive the ADP employment report at 8:15 a.m. ET, which provides an estimate of private payrolls for February. But the ADP report has an inconsistent record in forecasting the Labor Department’s jobs report. The February jobs report is due on Friday.
The JOLTS survey, which will be conducted at 10 a.m. ET, will reveal job openings since January.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze the stocks that could act on the stock market rally on IBD Live
Stock market rally
The stock market rally started off slightly higher on Tuesday, but fell sharply at 10 a.m. after testimony from Federal Reserve Chairman Powell Hawking.
The Dow Jones Industrial Average fell 1.7% in stock market trading on Tuesday. The S&P 500 index slipped 1.5%. The Nasdaq composite yielded up 1.25%. The small-cap Russell 2000 retreated 1.2%.
Apple shares fell 1.45%, erasing Monday’s gains. Intraday Monday, AAPL shares hit 156.30, clearing nearly a handful of buy points. Microsoft fell 1.1%, offsetting Monday’s 0.6% advance. Apple and Microsoft stocks are Dow Jones, S&P 500 and Nasdaq components.
Shares of S&P 500 and Nasdaq giant GOOGL fell 1.4%, returning to its 50-day line.
The 10-year Treasury yield actually fell 1 basis point to 3.97%. But yields rose for short-term Treasuries, which are more closely tied to central bank policy. The 2-year yield rose 12 basis points to 5.01%. The six-month T-bill yield rose 17 basis points to 5.29%.
Meanwhile, the US dollar rose on Powell’s hawkish testimony and generally higher Treasury yields, hitting its highest level since late November.
US crude oil prices fell 3.6% to $77.58 a barrel. Fed rate hike concerns, a strong dollar and weak Chinese imports weighed on crude. Copper prices fell 2.8% due to similar reasons.
Among growth ETFs, the innovator IBD 50 ETF (FFTYdecreased by 0.6%. iShares Expanded Technology-Software Sector ETF (IGV) yielded up to 1.%, while MSFT stock was a major contributor. VanEck Vectors Semiconductor ETF (SMHretreated 1.2%
Reflecting the more speculative story stocks, the ARK Innovation ETF (ARKK) 1.7% and the ARK Genomics ETF (ARKG) 1.1% Tesla stock is the dominant holding across Arc Invest’s ETFs.
SPDR S&P Metals & Mining ETF (XMEDown 2.85%. US Global Jets ETF (JETS) rose 0.65%, DAL stock is significantly higher. SPDR S&P Homebuilders ETF (XHB) down 1%. Energy Select SPDR ETF (XLE) fell 1.7% and the Financial Select SPDR ETF (45) slipped 2.6%. Health Care Select Sector SPDR Fund (XLV) yielded 1.6%.
Five Best Chinese Stocks to Watch Now
Tesla shares fell 3.15% to 187.71, below its 21-day moving average and its lowest close in a month. The EV company has an aggressive buy point at 217.75, but investors should wait for a decisive move above the 200-day line. The 200-day line is at 220 and lower. An extended pause would bring the 200-day line to the latest consolidation and allow the 50-day line to hold.
On Tuesday, China EV registration data showed Tesla sales rising for the second week in a row. But despite the big price cuts, Tesla’s China deliveries are still on pace to fall in the first quarter, versus Q4.
Tesla shares fell 1% before the open.
Berenberg downgraded Tesla shares to no-buy, saying the stock’s price has returned to fair value. The analyst said the Tesla price cuts will hit gross margins in the short term, but still sees higher margins in the long run.
US auto safety regulators have launched an investigation into Tesla’s Model Y SUV after receiving two complaints that the steering wheel could come off while driving.
The National Highway Traffic Safety Administration has opened another Tesla inspection, this time involving the steering wheel. The investigation covers 120,000 Model Y vehicles from the 2023 model year. On two occasions, Model Ys were delivered to customers without the bolts holding the wheel to the steering column.
Market rally analysis
The stock market rallied on poor reports from Fed Chairman Jerome Powell and the prospect of faster rate hikes and higher rates.
The S&P 500 fell below its 21-day moving average and broke its 50-day line. The Nasdaq composite fell to its 21-day line.
The Dow Jones, which hit resistance at the 50-day line on Monday, fell sharply on Tuesday.
Tuesday’s losses are usually followed by a negative session on Monday. Big-cap indices wiped out the day’s gains, but Apple stock, Google and Microsoft, fared relatively well. But the losers outnumbered the winners almost 2-to-1.
The Russell 2000 fell below its 21-day line on Monday and fell just above its 50-day line on Tuesday. The small-cap index had its worst result since late January.
Most of the leading stocks fell along with the overall market. Stocks have bounced back a bit from Monday morning’s optimism.
Miners like FCX stock stumbled on Tuesday on concerns about a strong dollar and China’s economy. But generally leading stocks have not suffered much damage yet.
DAL stock and other airline plays remain healthy, along with multiple travel names. CSIQ stock is hovering around a buy point with several solar names trying to shine. The NEWR stock is well integrated. Tesla stock could use a longer pause, but is still doing relatively well.
With the 10-year Treasury yield at 4%, short-term rates at 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 for a half-point central bank rate hike this month. As Tuesday’s selloff showed, it’s the market reaction that matters, not the news.
The S&P 500 barely holds the 50-day line and is not far from testing its 200-day once again. The Nasdaq and Russell 2000 could easily break below key levels. On the upside, a move above Monday’s intraday highs could break short-term trends 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 have regained momentum, negative news knocks it down. Is this a short-term pause within a trading range or the start of something more serious? It doesn’t take long to trigger extreme weakness or renewed strength.
So investors should be prepared and ready to act.
Better to hold off on buying until you get more clarity. Many stocks on Tuesday did not reveal new buy signals in any case. Instead, investors may want to consider exiting or trimming recent positions if they aren’t working.
Keep working on your watch lists. The rangebound market is tricky to play, but many new platforms and bullish bullbacks are taking shape.
Read the big picture every day to stay in tune with market direction and leading stocks and sectors.
Follow Ed Carson on Twitter @IBD_ECarson For stock market updates and more.
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