Dow Jones futures fell early Wednesday, along with S&P 500 and Nasdaq futures. fedex (FDX) reported Tuesday evening Fed Chief Jerome Powell due to testify before Congress today.
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The stock market rally posted losses for a second consecutive session. The Nasdaq and even the S&P 500 had been extended, so a pullback was not a surprise and might even be welcome. Major indexes gave ground reluctantly, notably the Nasdaq, with You’re here (TSLA) and Nvidia (NVDA) continues to progress.
Market breadth was weak on Tuesday, but has improved.
Meritage Homes (MTH) recovered a buy point on Monday, while Allegro Microsystems (ALGM) and Lantheus Enterprises (LNTH) flashed the first entries. elf beauty (ELF) presented a tight entry. ATI (ATI) is heading for a possible entrance.
However, buying stocks when the market is potentially entering a decline carries additional risk.
Tesla and Nvidia stocks are on the IBD ranking, with ELF stocks on the ranking watchlist. ELF Beauty and ALGM stocks are on the IBD 50. Tesla stock is on the IBD Big Cap 20. Meritage Homes was the IBD stock of the day on Tuesday.
Fed Chief Powell
Fed Chief Jerome Powell testifies before the House Financial Services Committee at 10 a.m. ET, then appears before the Senate Banking Committee on Thursday. Last week, the Fed left interest rates unchanged, but announced that two more rate hikes are coming this year. Markets are widely expecting a rally in July or September, but see little chance of a second hike by the end of the year. Fed Chief Powell, along with several other policymakers this week, may try to shore up expectations of a second hike. But Powell was relatively accommodating in his post-meeting comments last week. Either way, inflation reports and other economic data in the weeks and months ahead will tell.
Dow Jones Futures Today
Dow Jones futures were little changed from fair value. S&P 500 futures lost a fraction and Nasdaq 100 futures fell 0.1%.
The 10-year Treasury yield rose 2 basis points to 3.75%.
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.
FedEx Revenue
FDX stock fell more than 2% in extended trade after FedEx earnings narrowly beat fiscal fourth-quarter views while revenue lagged. The shipping giant also gave EPS 2024 guidance that was well below the views. FedEx stock fell 0.8% to 231.65 in Tuesday’s regular session, just below a buy point of 235.81 from a flat base part of a formation. base on base. Stocks just topped that entry last Thursday.
United Parcel Service (UPS) fell 1% overnight. UPS stock edged down 0.7% on Tuesday, trading around its 50-day and 200-day line, well below its February 2022 peak.
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Stock market rally
The stock market rally started with decent losses, but bottomed out after the first hour of trading.
The Dow Jones Industrial Average lost 0.7% in trading on Tuesday. The S&P 500 index fell 0.5%. The Nasdaq composite fell less than 0.2%. The small cap Russell 2000 fell 0.5%.
US crude oil prices fell 1.8% to $70.50 a barrel. The 10-year Treasury yield fell 4 basis points to 3.73%.
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Among growth ETFs, the Innovator IBD 50 ETF (FFTY) edged up 0.2%. The iShares Expanded Tech-Software Sector ETF (IGV) slipped 1%. ETF VanEck Vectors Semiconductor (SMH) edged down 0.35%. NVDA stock, SMH’s No. 1 main holding, soared 2.6%, hitting a new all-time high.
Reflecting more speculative historical stocks, ARK Innovation ETF (ARKK) fell 0.1% and ARK Genomics ETF (ARKG) edged up 0.35%. TSLA stock, Ark Invest’s No. 1 ETF position, rose 5.3% on strong electric vehicle sales in China and another charging technology deal in the US, this time with Rivian (RIVN). Tesla continued to rise early Wednesday.
The SPDR S&P Metals & Mining ETF (XME) fell 0.5%. The US Global Jets ETF (JETS) fell 0.3%. The SPDR S&P Homebuilders ETF (XHB) rose 0.6%. The Energy Select SPDR ETF (XLE) fell 2.2% and the Health Care Select Sector SPDR Fund (XLV) fell 0.1%.
The Financial Select SPDR ETF (XLF) lost 0.75%. The SPDR S&P Regional Banking ETF (KRE) fell 1.3%.
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Stocks close to buy points
Meritage Homes rose 2% to 132.89, back above a buy point of 130.68 from a stable base, according to MarketSmith analysis. MTH stock has been trading around this entry for two weeks. Surprisingly strong housing starts helped support homebuilder stocks.
Allegro Micro stock jumped 4% to 41.76. Stocks rebounded from their 50-day line, broke a trendline in its consolidation, and broke past short-term resistance. ALGM stock did all of this in higher volume.
Lantheus stock jumped 5.2% to 92.87, moving strongly above the 50-day line. LNTH stock is in an emerging consolidation with a possible buy point of 100.85. But Tuesday offered early entry. Medical product companies have revived in recent sessions
ELF stock rose 3% to 107.19, erasing a tight three-week intraday entry of 108.43 and setting a new closing high. This offered existing investors the opportunity to add a few more shares.
ATI stock rose 2.7% to 40.36. The Specialty Alloys game has a consolidation buy point of 43.32 on a daily chart, but is working on a possible handful. On a weekly chart, the handle is there, giving ATI shares a lower buy point of 41.
Market rally analysis
The stock market rally retreated slightly again on Tuesday, but the major indexes moved well away from intraday highs. The Nasdaq, which was extended, barely fell.
Growth of megacaps. In addition to Tesla and Nvidia stocks, Apple (AAPL), Metaplatforms (META), Amazon.co.uk (AMZN) and netflix (NFLX) all advanced.
The broader market suffered losses, but in a normal and healthy way. The losers clearly outpaced the winners, but the overall trend was positive.
The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) fell 0.9% but never touched its 10-day line.
The Invesco S&P 500 Equal Weight (RSP) ETF also fell 0.9%, finding support at the 10-day line and near its April high.
The Nasdaq composite is still 8.6% above its 50-day line, with the Nasdaq 100 9.9% above that line, both significantly high.
A few buying opportunities presented themselves on Tuesday, such as Meritage and ALGM stocks. As always, market and sector performance will be key to the future performance of these stocks.
A break or pullback in the market would allow major stocks to find support at major moving averages or perhaps consolidate around traditional buy points, creating new entries. Other potential leaders, such as ATI Stock, are trying to forge handles.
Look at indices or ETFs such as the Dow Jones, QQEW, RSP, XLI to get an idea of how breaks or pullbacks would translate to individual names.
Of course, some stocks will lag or even crash into a modest pullback. Some of these stocks may have lagged in recent weeks, but that’s not always obvious when the market is up.
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What to do now
A modest pullback still seems to be the most plausible scenario for the near-term stock market rally. The alternatives are sideways action, a more serious slide, or renewed market strength that almost immediately pushes the Nasdaq to more extreme levels. Neither of these scenarios looks particularly bullish for new purchases, especially tech games.
If you are making new or additional purchases in the current climate, be prepared to take a step back quickly. You may consider taking partial profits on certain extended names, although this will depend on your position size, overall exposure and investment style.
Continue to create watchlists. A lot of stocks need time to forge new entries, but you want to be ready to pounce.
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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