Dow Jones futures rose slightly early Wednesday, along with S&P 500 and Nasdaq futures. CrowdStrike (CRWD) bounced back overnight on earnings. Tesla stock fell slightly following an analyst downgrade.
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The stock market rally suffered heavy losses after Fed chief Jerome Powell said policymakers were “ready to accelerate the pace of rate hikes”. The S&P 500 broke above its 21-day moving average and broke above its 50-day line.
You’re here (TSLA) fell below a key level, but this could still be a constructive action. Tech Titans Apple (AAPL), Microsoft (MSFT) and parent company of Google Alphabet (GOOGL), modest gains on Monday, gave up those gains on Tuesday.
Many leaders held up reasonably well, although others took more damage. Delta Airlines (DAL), New relic (NEW) and Canadian Solar (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 discusses Tuesday’s market action and analyzes DAL, Canadian Solar and Freeport-McMoRan stocks.
DAL stock is on the IBD Big Cap 20. New Relic was the IBD stock of the day on Tuesday.
Fed Chief Powell
Citing stronger economic data, Fed Chief Jerome Powell said “the ultimate level of rates will likely be higher than expected.” Markets had already forecast rates higher than the Fed’s forecast at the end of 2022 for a maximum rate of around 5.1%.
But Powell also signaled that he was open to a re-acceleration in Fed rate hikes. “If all the data were to indicate that faster tightening is warranted, we would be prepared to accelerate the pace of rate hikes.”
This 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 climbed to 70.5% from 31% on Monday and 24% a week earlier.
Key wins
CRWD stock rose solidly after CrowdStrike’s earnings beat and cybersecurity play gave bullish indications. CrowdStrike stock fell 2.1% in Tuesday’s session to 124.93, up sharply over the past two months but still well below the 200-day line. Okta (OKTA), Palo Alto Networks (PANW) and Fortinet (FTNT) seemed more solid.
SoundHound AI (SOUN) fell sharply on a weaker-than-expected loss in the fourth quarter and revenue growth that narrowly exceeded. The AI game gave online revenue forecasts for 2023. SOUN stock rose 2.15% to 3.33 on Tuesday. SoundHound stock is working on a buy point of 5.04 from a consolidation that is mostly forming above the 200-day line.
Dow Jones Futures Today
Dow Jones futures edged up 0.1% from fair value. S&P 500 futures climbed 0.1% and Nasdaq 100 futures rose 0.25%.
The 10-year Treasury yield held steady at 3.97% after rising slightly above 4% overnight.
Investors will receive the ADP jobs report at 8:15 a.m. ET, providing an estimate of private payrolls in February. But the ADP report has a spotty record of forecasting the Department of Labor’s jobs report. The February jobs report is due Friday.
The JOLTS survey at 10 a.m. ET will reveal job openings starting in January.
Remember that overnight action on futures contracts on Dow Jones and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join the experts at IBD as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally
The stock market rally started slightly higher on Tuesday, but fell sharply on hawkish testimony from Fed Chief Powell at 10 a.m. ET.
The Dow Jones Industrial Average fell 1.7% in Tuesday’s stock trading. The S&P 500 index slipped 1.5%. The Nasdaq composite fell 1.25%. The small-cap Russell 2000 fell 1.2%.
Apple stock fell 1.45%, essentially erasing Monday’s gain. On Monday intraday, AAPL stock hit 156.30, breaking almost a handful buy point. Microsoft fell 1.1%, more than offsetting Monday’s slight 0.6% gain. Apple and Microsoft stocks are components of the Dow Jones, S&P 500 and Nasdaq.
Shares of the S&P 500 and Nasdaq giant GOOGL fell 1.4%, returning to their 50-day line.
The 10-year Treasury yield actually fell 1 basis point to 3.97%. But yields soared for short-term Treasuries, which are more closely tied to Fed policy. The 2-year yield jumped 12 basis points to 5.01%. The yield on six-month Treasury bills jumped 17 basis points to 5.29%.
Meanwhile, the US dollar soared on hawkish testimony from Powell and generally higher Treasury yields, hitting its highest level since late November.
U.S. crude oil prices fell 3.6% to $77.58 a barrel. Worries over the Fed’s rate hike, a stronger dollar and weak Chinese imports weighed on crude. Copper prices fell 2.8% for similar reasons.
AND F
Among growth ETFs, the Innovator IBD 50 ETF (FFTY) edged down 0.6%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 1.% as MSFT stock was a major holding. ETF VanEck Vectors Semiconductor (SMH) fell 1.2%
Reflecting more speculative stocks, ARK Innovation ETF (ARKK) fell 1.7% and ARK Genomics ETF (ARKG) 1.1%. Tesla stock remains a major holding in Ark Invest’s ETFs.
The SPDR S&P Metals & Mining ETF (XME) fell 2.85%. The US Global Jets ETF (JETS) climbed 0.65%, with DAL stock a notable holding. SPDR S&P Homebuilders ETF (XHB) quit 1%. The Energy Select SPDR ETF (XLE) fell 1.7% and the Financial Select SPDR ETF (XLF) slipped 2.6%. The SPDR healthcare sector fund (XLV) fell 1.6%.
Five best Chinese stocks to watch now
Tesla Stock
Tesla stock fell 3.15% to 187.71, back below its 21-day moving average and its lowest close in a month. The electric vehicle giant has an aggressive buy point of 217.75, but investors should probably wait for a decisive move above the 200-day line. The 200 day line is around 220 and is drifting lower. An extended break would bring the 200-day line back into recent consolidation and let the 50-day line catch up.
Electric vehicle registration data in China on Tuesday showed Tesla’s sales increased for the second week in a row. But Tesla’s China shipments are still on course to fall in the first quarter from the fourth quarter, despite steep price cuts.
Berenberg downgraded Tesla stock to keep it from a buy, saying the stock price rebounded to a fair value. The analyst said Tesla’s price cuts will hit gross margins in the short term, but they still expect high margins in the long term.
Tesla stock lost a fraction ahead of the open.
Market rally analysis
The stock market rally did not react well to Fed Chief Jerome Powell’s hawkish statements and the prospect of faster rate hikes and higher rates.
The S&P 500 fell below its 21-day moving average and just broke above its 50-day line. The Nasdaq composite crossed its 21-day line.
The Dow, which touched resistance at the 50-day line on Monday, fell sharply on Tuesday.
Tuesday’s losses followed a generally negative session on Monday. Large-cap indices erased gains on the day but held up relatively well, thanks to shares in Apple, Google and Microsoft. But the losers outweighed the winners almost 2 to 1.
The Russell 2000, which fell below its 21-day line on Monday, fell just above its 50-day line on Tuesday. The small cap index had its worst close since late January.
Most major stocks fell along with the broader market. Stocks that looked promising on Monday morning came back a bit.
Miners such as FCX shares stumbled on Tuesday on the strengthening dollar and worries about the Chinese economy. But generally, the major stocks haven’t suffered too much damage yet.
DAL stocks and other airlines look healthy, as well as many broader travel names. CSIQ stock hovers at a buy point with several solar names trying to shine. NEWR stock is consolidating well. Tesla stock could use a longer break, but is still performing relatively well.
With the 10-year Treasury yield close to 4%, short-term rates above 5% and the dollar rising, it is understandable that the stock market rally is having some difficulty.
Friday’s jobs report and next week’s CPI inflation report could lock in expectations of a half-point Fed rate hike this month. As Tuesday’s selloff showed, it’s market reaction that counts, not news.
The S&P 500 is barely holding the 50-day line and not that far from retesting its 200-day. The Nasdaq and Russell 2000 could also easily break below major levels. On the upside, a break 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 gaining momentum, negative news sets it back. Is this a short term break in a trading range or the start of something more serious? It wouldn’t take much to trigger serious weakness or a surge of strength.
Investors must therefore be prepared and ready to act.
It’s probably best to hold off on purchases until there’s more clarity. Few stocks issued new buy signals on Tuesday anyway. Instead, investors may consider exiting or reducing recent positions if they are not performing.
Keep working on your watchlists. The rangebound market is tough to play, but plenty of new bullish bases and pullbacks are also taking shape.
Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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The 200-day average: the last line of support?