Dow futures tilted lower early Wednesday, along with S&P 500 futures and Nasdaq futures. CrowdStrike (CRWD) rose overnight on earnings. Tesla stock fell slightly as a result of an analyst downgrade and a new safety investigation.
The stock market rally saw huge losses after Federal Reserve Chairman Jerome Powell said that policy makers are “ready to increase the pace of interest rate hikes.” The S&P 500 has crossed its 21-day moving average and lowered the 50-day line.
Tesla (TSLA) fell below the main level, but this can still be a constructive measure. tech giants apple (AAPL), Microsoft (MSFT) and the parent of Google the alphabet (Google), which was a modest winner on Monday, gave up those gains on Tuesday.
Several leaders held reasonably well, though others took more damage. Delta Airlines (DAL), Fresh remains (NEWR) And Canadian Solar (CSIQ) flirted with buy signals as their groups performed well.
Investors should be wary of 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 stock, Canadian Solar, and Freeport-McMoRan.
DAL stock is located at IBD Big Cap 20. New Relic was today’s stock Tuesday from IBD.
Fed Chairman Powell
Citing stronger economic data, Fed Chair Jerome Powell said that “the final level of rates is likely to be higher than previously expected.” Markets were already pricing in higher rates than the Fed’s forecast in late 2022 for a peak rate of around 5.1%.
But Powell also indicated that he is open to re-accelerating the Fed’s rate hikes. “If the aggregate data indicates that a faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
This puts further pressure on Friday’s February jobs report, as well as next week’s CPI inflation report.
The odds of a 50 basis point rate hike on March 22 rose to 70.5%, up from 31% on Monday and 24% a week ago.
CRWD stock rose strongly after CrowdStrike’s earnings beat and cybersecurity play gave bullish guidance. CrowdStrike stock fell 2.1% in the Tuesday session to 124.93, up sharply over the past two months but still well below its 200-day line. Octa (OKTA), Palo Alto Networks (Banu) And fortinet (FTNT) look stronger.
SoundHound AI (maintenance) early Wednesday on a smaller-than-expected fourth-quarter loss and revenue growth by a narrow margin. AI Play gave direct revenue guidance for 2023. SOUN stock rose 2.15% to 3.33 Tuesday. SoundHound stock is 5.04 pips long of the consolidation that formed mostly above the 200-day line.
Dow jones futures today
Dow Jones futures lost 0.1% against fair value, pulling back from slim gains. S&P 500 and Nasdaq 100 futures fell 0.1%.
The 10-year Treasury yield settled at 3.97% after rising slightly to 4% overnight.
Crude oil futures fell slightly.
Investors will get the ADP employment report at 8:15 AM ET, which provides an estimate of private jobs in February. But the ADP report has a mixed record of predicting the Labor Department’s jobs report. The February jobs report is due on Friday.
The JOLTS poll at 10 a.m. ET will reveal job openings starting in 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 actionable shares in the bullish stock market on IBD Live
Stock market rise
The stock market rally started Tuesday with a slight uptick, but fell sharply on Fed Chair Powell’s optimistic testimony at 10 a.m. ET.
The Dow Jones Industrial Average fell 1.7% in stock market trading Tuesday. The S&P 500 fell 1.5%. The Nasdaq Composite lost 1.25%. Small Capital Russell 2000 fell 1.2%.
Apple stock fell 1.45%, essentially erasing Monday’s gains. During the day on Monday, AAPL stock reached 156.30, roughly close to the buy handle point. Microsoft sank 1.1%, more than offsetting Monday’s choppy 0.6% advance. Apple and Microsoft stocks are components of the Dow Jones, S&P 500, and Nasdaq.
The S&P 500 and Nasdaq giant GOOGL fell 1.4%, returning to the 50-day streak.
The 10-year Treasury yield actually fell 1 basis point, to 3.97%. But short-term Treasury yields, which are closely linked to Fed policy, have risen significantly. The two-year yield jumped 12 basis points, to 5.01%. The six-month Treasury bill yield rose 17 basis points to 5.29%.
Meanwhile, the US dollar rose on Powell’s dovish testimony and generally higher Treasury yields, reaching their highest level since late November.
US crude oil prices fell 3.6 percent to $77.58 a barrel. Fears of a Fed rate hike, dollar strength and weak China imports weighed on Crude Oil. Copper prices fell 2.8% for similar reasons.
Exchange Traded Funds
Among the ETFs, the Innovator IBD 50 ETF (fifty) decreased by 0.6%. iShares Expanded Technology and Software ETF (IGV) gave up 1.%, with a large stake in MSFT shares. VanEck Vectors Semiconductor Corporation (SMH) fell 1.2%
Reflecting more speculative stories, the ARK Innovation ETF (ARK)ark(gave up 1.7% and the ARK Genomics ETF)ARKG) 1.1%. Tesla stock remains a major holding via Ark Invest’s ETF.
SPDR S&P Metals & Mining ETFs (XME) decreased by 2.85%. US Global Gates Foundation ETF (Planes) rose 0.65%, with DAL stock holding a notable hold. SPDR S&P Homebuilders ETF (XHB) step down by 1%. Energy Select SPDR ETF (xle(Sinking 1.7% and Financial Select SPDR ETF)XLF) slipped 2.6%. SPDR Health Care Sector Selection Fund (XLV) was waived 1.6%.
Top five Chinese stocks to watch now
Tesla stock fell 3.15% to 187.71, back below the 21-day moving average and lowest close in a month. The electric vehicle giant has a strong buy point at 217.75, but investors will likely wait for a decisive move above the 200-day line. The 200-day line is around 220 and is drifting lower. The extended pause may push the 200-day line lower in the recent consolidation and allow the 50-day line to catch up.
On Tuesday, electric vehicle registration data in China showed Tesla sales there rose for the second week in a row. But Tesla deliveries in China are still on track to decline in the first quarter versus the fourth quarter, despite the big price cuts.
Tesla stock fell 1% before the open.
Berenberg downgraded Tesla stock to hold it from a buy, saying the stock price had rebounded to fair value. The analyst said Tesla’s price cuts will hit gross margins in the short term, but it still sees high margins in the long term.
US auto safety regulators have opened an investigation into Tesla’s Model Y SUV after receiving two complaints that the steering wheels could come off while driving.
The National Highway Traffic Safety Administration opened up another Tesla probe, this time due to the steering wheels firing. The investigation covers an estimated 120,000 Model Y vehicles from the 2023 model year. In two cases, Model Ys were delivered to customers without the wheel securing bolt to the steering column.
Market rally analysis
The stock market rally did not react well to Fed Chair Jerome Powell’s hawkish comments and the prospect of faster and higher interest rate hikes.
The S&P 500 fell below its 21-day moving average and lowered the 50-day line. The Nasdaq Composite fell through the 21-day line.
The Dow, which hit resistance at the 50-day line on Monday, fell sharply on Tuesday.
Tuesday’s losses followed a generally negative session on Monday. Big caps wiped out the gains that day, but they held up relatively well, thanks to Apple, Google and Microsoft stocks. But the losers outweighed the winners by nearly 2 to 1.
The Russell 2000 Index, which fell below the 21-day line on Monday, fell to just over the 50-day line on Tuesday. The small business index posted its worst close since late January.
Most of the blue-chips fell along with the market as a whole. Stocks that looked promising Monday morning are back a bit.
Mining companies such as FCX faltered on Tuesday due to the strength of the dollar and concerns about the Chinese economy. But the leading stocks in general have not suffered much damage so far.
Shares of DAL and other airlines appear to be in good health, along with several large-scale travel names. CSIQ stock is hovering at a buy point as several solar names are trying to shine. NEWR stock is well consolidated. Tesla stock could use a longer pause, but it’s still doing relatively well.
With the 10-year Treasury yield approaching 4%, short-term interest rates rising to 5% and the dollar surging, it is understandable that the stock market rally is facing some problems.
Friday’s jobs report and next week’s CPI inflation report could anchor expectations for a half-point Fed rate hike this month. As Tuesday’s sell-off showed, what matters is the market’s reaction, not the news.
The S&P 500 is barely holding the 50-day line and is not far from testing the 200-day again. The NASDAQ and Russell 2000 could easily break below key levels as well. On the upside, a move above Monday’s daily highs would break the short-term trend lines of the S&P 500, Nasdaq, and Russell indices.
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What are you doing now
Just when the stock market rally appears to be regaining momentum, negative news sends it back down. Is this a short-term pause in a trading range or the start of something more risky? It wouldn’t take much to cause serious weakness or renewed strength.
So investors must be prepared and willing to act.
It is probably best to hold off on purchases until there is more clarity. Not many stocks flashed fresh buy signals on Tuesday anyway. Alternatively, investors may want to consider exiting or cutting back on recent positions if they are not working.
Keep working on your watchlists. Range bound market is challenging, but many new rules and bullish pullbacks are also forming.
Read the big picture every day to stay in sync with market trend, leading stocks and sectors.
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200-day average: recent support line?
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