Dow futures tilted lower early Wednesday, along with S&P 500 futures and Nasdaq futures. All eyes are on the announcement of the Federal Reserve meeting and Fed Chairman Jerome Powell. The Fed rate hike expectations signals will be key.
The stock market closed slightly higher but after initially pulling back on the CPI inflation report. Promising moves by blue-chip stocks have generally declined or reversed lower.
Tesla (TSLA) dropped to fresh bear market lows on Tuesday as sentiment turned bearish on the EV giant. TSLA stock has sold off in large quantities. CEO Elon Musk himself appeared to acknowledge Tesla’s concerns about the order on Wednesday.
Among the Dow Jones megacap technologies, apple (AAPL) erased a strong early gain amid reports of a sweeping change to its App Store model. Microsoft (MSFT) closed higher, but after hitting the main resistance.
Airline stocks sold off sharply Jet Blue (JBLU) added a warning to recent concerns about travel demand heading into 2023. United Airlines (UAL), which has been flirting with longs for the past two weeks, fell on Wednesday.
while, General Electric (GE), Goldman Sachs (p) f Peabody Energy (BTU) all found support at key levels and are close to potential buy points. Peabody was IBD Tuesday’s stock of the day.
The video embedded in this article discussed Tuesday’s market action and analyzed Tesla, GE, and Peabody Energy stocks.
Fed rate hike expectations
The Federal Reserve will almost certainly raise interest rates by 50 basis points at 2pm ET, after four consecutive 75 basis point Fed rate increases. What investors want are signals about Fed rate policy in early 2023.
After Tuesday’s CPI inflation report, markets are now leaning slightly towards a quarter-point rate hike on February 1st.
The consumer price index for November came in less than expected, with a monthly gain of 0.1%, or 0.2% excluding food and energy. CPI inflation fell to 7.1%, the lowest level in a year and down from 7.7% in October. Core CPI inflation eased to 6% from 6.3%.
The Fed will also release the Quarterly Economic Outlook, along with policymakers’ expectations for interest rate hikes. This may provide insight into where the policy maker sees the “terminal” or peak fed funds rate.
Fed Chairman Jerome Powell will speak at 2:30 PM ET. His comments about inflation risks, recession and higher Fed rates will be crucial for stocks and Treasury yields.
Dow jones futures today
Dow futures fell against fair value. S&P 500 and Nasdaq 100 futures were down 0.1%.
Crude oil futures rose slightly. Natural gas prices fell by 4%.
The 10-year Treasury yield rose 1 basis point, to 3.51%.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
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Stock market rise
Tuesday’s stock market rally started off strong, with all major indexes breaking short-term highs in the CPI inflation report. But the gains have faded significantly.
The Dow Jones Industrial Average closed 0.3% higher in stock market trading on Tuesday. The S&P 500 rose 0.7%. The Nasdaq Composite Index rose 1%. Small Capital Russell 2000 advanced 0.3%.
Apple stock rose to 149.97 on the day, but closed up just 0.7%, at 145.47. That just got the 50 day streak back. Bloomberg reports that Apple will open its iPhones and iPads to multiple app stores in Europe, to please European regulators. Apple has turned the App Store into a huge money store over the past several years.
Microsoft stock rose 1.75% to 256.92, closing above its December 1 high. But shares were far from their morning high of 263.92. MSFT stock peaked at the 200 day line, which is a major resistance area.
US crude oil prices rose 3% to $75.39 a barrel.
The 10-year Treasury yield fell 11 basis points to 3.5%, although it was down on the day at 3.43%. The two-year Treasury yield, which is closely linked to Fed policy, fell 18 basis points to 4.22%.
Exchange Traded Funds
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) was up 0.8%, while the Innovator IBD Breakout Opportunities ETF (BOUT) was up 0.9%. The iShares Expanded Tech-Software ETF (IGV) was up 1.6%, with MSFT stock a major component. The VanEck Vectors Semiconductor Index (SMH) rose 1.7%. Reflecting speculative stock stories, ARK Innovation ETF (ARKK) was down 0.1% and ARK Genomics ETF (ARKG) was up 1.1%. Tesla stock is a major holding across Ark Invest’s ETFs, but especially ARKK.
SPDR offers the S&P Metals & Mining ETF (XME) 0.8% and the US ETF Global X Infrastructure Development Fund (PAVE) 0.9%. The US ETF Global Jets (JETS) was down 2.85%, with UAL and JetBlue stock both components. The SPDR S&P Homebuilders ETF (XHB) gained 1.8%, with several builders and housing-related retailers showing strength. The Energy Select SPDR ETF (XLE) edged up 1.9%. Financial Select SPDR ETF (XLF) and Health Care Select Sector SPDR Fund (XLV) both rose 0.3%.
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Stocks to watch
GE stock fell 0.4% to 82.88 after it crossed its 21-day moving average on the day. On Monday General Electric made a strong advance from a bottom of 81.40 buy. On the weekly chart, GE stock found support at its 10-week moving average for the first time since the early November breakout. A strong bounce from these levels, which might be Tuesday’s high at 84.90, will provide a buying opportunity.
GE’s earnings, though uneven, rebounded in 2022, with stronger growth next year.
GS stock also recently breached the bottom of the cup and found support at the 10-week line, retreating below the buy point of 358.72. The investment bank is rebounding this week. On the weekly chart, Goldman stock has been trading on a 13-month cup-handle base with 389.68 buy points, according to MarketSmith analysis.
On Tuesday, shares rose 1.5% to 368.89, above the 21-day moving average but well off the intraday highs of 378.56. A move above Tuesday’s high could provide an early entry in GS stock.
Peabody Energy Stocks
BTU rose 2.2% to 28.47 on Tuesday, bouncing from the 50-day and 10-week lines but hitting resistance at the 21-day line. Peabody stock has a 32.99 handles buy point on the consolidation going back nearly eight months. But BTU stock, like the general market, tends to advance rapidly followed by more gradual pullbacks giving up much of the earlier gains. A move above Tuesday’s high of 29.08 could provide an early entry from both the 50-day and 21-day lines as well as a break to the downside of the handle.
Tesla stock opened higher, but quickly gave back gains and then turned sharply lower for the second straight session. Shares jumped through bear market lows on November 21, closing down 4.1%, at 160.95. The trading volume was the largest in over a year, with several other high-traded pullbacks in the past two weeks.
It’s possible that some of the big TSLA stock or mutual fund investors are selling the stock when it’s down and as the year wears on.
More broadly, Tesla stock has lost nearly half its value since late September. A sharp sell-off was followed by a short bounce and apathy.
On Tuesday, data showed that Tesla China vehicle registrations came in last week below expectations. That adds to demand concerns in China and comes amid widespread reports that Tesla will slow production at its Shanghai factory, possibly suspending production at the end of the year.
Elon Musk appeared to acknowledge on Tuesday that Tesla’s order is problematic. “Tesla will be great in the long run, but it doesn’t control the macroeconomic waves,” Musk wrote in a tweet.
While a weak global economy is likely a factor, Tesla also faces increased competition, especially in China.
Meanwhile, Elon Musk’s Twitter verdict affects Tesla stock. His attention seems focused on Twitter versus the EV giant. Meanwhile, Musk’s increasingly partisan and troll tweets have hurt his brand image, especially with Democrats. The concern of TSLA stock investors is that Elon Musk’s downsides will turn off potential Tesla EV buyers.
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Market rally analysis
The stock market rose at Tuesday’s opening on the back of the CPI inflation report, but quickly gave up much of those gains.
All major indices topped intraday highs on December 1 for a brief period before reversing. The S&P 500 closed back above its 200-day moving average. The NASDAQ continued to bounce from the 50-day and 21-day lines.
Russell’s 2000 opened above the 200-day mark, but faded below that level and finished below the 21-day streak.
If major indices, especially the S&P 500, can move above their December 1 highs, that would be a bullish sign, but not necessarily definitive. The current market rally made a number of big gains in one day, quickly followed by pullbacks that erased that move. This made it difficult to buy strength.
Not surprisingly, a lot of stocks showed big upward movements at the opening on Tuesday, but were pulled back by small gains or direct losses. Megacaps are neutral at best, like Microsoft stock, laggards like Apple stock or outright losers like Tesla.
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What are you doing now
Tuesday’s market action shows why investors should not buy at the open, especially when major indicators are mixed on the news. It also explains why investors need to keep their emotions in check.
If the market rallies strongly with Wednesday’s rate hike and Fed Chair Powell’s comments, there will likely be some buying opportunities. But add exposure gradually, using early entries and withdrawals for somewhat safer entries.
Until the market rally goes from volatile movement to a sustained upward trend, it is dangerous to overexpose.
Lots of stocks are being generated from a variety of sectors. So you want to be prepared, and work on your watchlists. Keep sharing so you can act as clear buying points for stocks.
Read the big picture every day to stay in sync with market trend, leading stocks and sectors.
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