Futures: what to do before inflation data, Powell's speech

Market wipes out Powell’s speech gains; What to do now

Dow Jones futures fell early Wednesday, along with S&P 500 and Nasdaq futures. Tesla stock fell as the electric vehicle giant offered another price incentive in China.




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The stock market rally saw another weak session, with Apple (AAPL) and Exxon Mobil (XOM) dropping below key levels on Tuesday as Amazon.co.uk (AMZN) and You’re here (TSLA) are beginning to head towards bear market lows.

The S&P 500 and other key indexes were testing or undercutting key levels, rounding out last Wednesday’s big gain after Fed Chief Jerome Powell’s speech.

This stock market rally saw several big gains in one day, followed by pullbacks. This made it difficult for stocks showing buy signals to move higher. Now is not a good time to add exposure, but investors should look for stock placement.

United rentals (URI), UnitedHealth Group (UNH) and United Airlines (UAL) all trade close to the buy points.

The UAL stock is on the IBD ranking, while the URI stock is on the ranking watch list. Shares of United Airlines, Charles Schwab and UNH are on the IBD 50. United Rentals was the IBD stock of the day on Tuesday.

Earnings News

Database software vendor MongoDB (MDB) jumped early Wednesday on a surprise profit. MDB’s stock has plunged over the past year.

Manufacturer of driver assistance systems mobileye (MBLY) beat views in its first report since being published in late October. MBLY stock has had its ups and downs.

Ollie’s Bargain Outlet (OLLI) fell after the closing retailer missed earnings and sales.

Dow Jones Futures Today

Dow Jones futures were down 0.3% from fair value. S&P 500 futures fell 0.6% and Nasdaq 100 futures fell 1%.

The 10-year Treasury yield rose 4 basis points to 3.55%.

Crude oil futures rose slightly. Natural gas prices climbed 3%. US agreed to send more LNG to UK

China scrapped more Covid rules, as expected, but trade data came in weaker than expected. Hong Kong’s Hang Seng, which had been rising, fell 3.2%.

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


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Stock market rally

The stock market rally quickly reversed after Tuesday’s open and continued to decline during the day before paring losses slightly towards the close.

The Dow Jones Industrial Average fell 1% in trading on Tuesday. The S&P 500 index lost 1.4%. The Nasdaq composite fell 2%. The small-cap Russell 2000 fell 1.5%

US crude oil prices fell 3.5% to $74.25 a barrel.

The 10-year Treasury yield fell 9 basis points to 3.51%, returning near the lowest levels since Sept. 20.

The stock market’s inverse relationship to Treasury yields may be breaking down. A lower 10-year Treasury yield may increasingly reflect rising recession risks versus falling inflationary pressures. The yield curve, which continues to invert, also indicates recession fears.

Megacap losers

Apple stock, a member of the Dow Jones, S&P 500 and Nasdaq composite, slid 2.5% to 142.91, back below its 50-day line. XOM stock fell 2.8%, also below its 50-day line as well as below a buy point. Exxon shares are struggling as oil, gasoline and natural gas prices plummet.

Amazon stock fell 3% to 88.25, approaching its November 9 bearish low at 85.87.

Tesla stock fell 1.4% to 179.82, off intraday lows but after falling 6.4% on Monday. TSLA is heading for 52-week lows but still has some way to go before falling to 166.19.

Tesla is now offering a 6,000 yuan ($860) discount on in-stock cars in China, on top of an existing insurance subsidy of 4,000 yuan. Along with other incentives, Tesla China is offering more than 20,000 yuan in incentives, and that’s before government subsidies of 11,088 yuan.

Meanwhile, there are more signs that Tesla will reintroduce radar into its vehicles. Elon Musk removed radar from new Tesla electric vehicles in 2021 during the chip crisis, saying vision-only would be better for self-driving. Almost every other player in self-driving uses a variety of sensors.

TSLA stock fell 3% early Wednesday.

AND F

Among the major technology ETFs, the iShares Expanded Tech-Software Sector ETF (IGV) fell 1.7%. ETF VanEck Vectors Semiconductor (SMH) fell 2.2%.

The SPDR S&P Metals & Mining ETF (XME) edged up 0.25% and the Global X US Infrastructure Development ETF (PAVE) edged down 0.3%. US Global Jets ETF (JETS) held altitude. The SPDR S&P Homebuilders ETF (XHB) fell 1.4%. ETF Energy Select SPDR (XLE) fell 2.6% and ETF Financial Select SPDR (XLF) 0.9%. The SPDR healthcare sector fund (XLV) fell 0.8%.

Reflecting more speculative stocks, ARK Innovation ETF (ARKK) fell 4% and ARK Genomics ETF (ARKG) 3%. Tesla stock is a major holding in Ark Invest’s ETFs.


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Stocks close to buy points

United Rentals stock rose 0.5% to 347.29, just above the 21-day line. URI stock has a handle buy point of 368.04 from a consolidation dating back to November 2021. Breaking the downtrend of the handle could offer early entry. Multiple heavy equipment sets including Deere (OF), caterpillar (CAT) and Titan Machinery (TITN), also seem solid.

UNH stock edged up 0.8% to 539.32. The Dow Jones giant has a buy point of 558.20 from a flat base next to a cup consolidation with handle.

UAL stock rose 2% to 45.92, just above the buy point of 45.67 cup with handle, according to MarketSmith analysis. Some other airline and travel stocks look solid.


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Market rally analysis

The stock market rally continues a frustrating pattern of jumping four steps forward and then coming back over the next few days.

Major indexes have fallen solidly for two straight sessions, wiping out or undermining big gains from Fed Chief Jerome Powell’s speech last Wednesday.

The S&P 500, which fell back below the 200-day line on Monday, extended its losses on Tuesday to break above the 21-day line. The Russell 2000, which fell below the 200-day and 21-day lines, slid to the lowest close since Nov. 9, with the 50-day line coming back into play.

The S&P MidCap 400 closed below its 21-day line for the first time since Oct. 20 and pulled back to test its 200-day mark.

The Dow, which led the market rally, fell below its 21-day line for the first time since Oct. 14 but is well above its 200-day line.

The lagging Nasdaq broke above its 21-day line and is approaching its 50-day line again, just above the 11,000 level.

All of these indexes closed at their worst levels since Oct. 9, just ahead of the Oct. 10 gap in the October CPI inflation report.

Last Wednesday’s big market gains were puzzling at the time, as Fed chief Powell said nothing particularly different or dovish. Major indexes held firm on Friday as Treasury yields finally closed lower, despite the hot jobs report being even more confusing.

But the technical picture is familiar.

Since the start of the stock market rally on October 13, the major indices have recorded several large gains in one day, such as October 28 and November 30. all that big payoff.

So just as the major indices are making higher highs and the major stocks are giving buy signals, the market rally begins to fade again.


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What to do now

So far, the market rally has ultimately rebounded each time, setting higher highs along the way. But that doesn’t mean it will happen this time. More importantly, it doesn’t mean your stocks will rebound.

Until the S&P 500 moves decisively above the 200-day line, investors should be wary of increasing exposure. The Nasdaq and Russell 2000 falling below their 50-day lines, and the S&P 500 testing its October highs, would be signs to further reduce exposure.

Also note that November’s CPI Inflation Report is released on December 13, with the Fed’s year-end rate hike and Powell press conference the next day. These big events could act as a catalyst for a market rally up or down.

Investors must therefore be ready to act. That means having watchlists ready, but it also means staying engaged and flexible.

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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