Dow Jones futures were little changed overnight, along with S&P 500 futures and Nasdaq futures. The stock market rally came under further pressure on Tuesday, with major indices all falling below their 50-day moving averages and leading stocks struggling.
A surprising jump in job openings raised expectations for major rate hikes by the Fed, triggering the market’s slump on Tuesday. Crude oil and natural gas prices plummeted, causing energy supplies to plummet, while other commodity prices also retreated. Antero Resources (AR), Steel dynamics (STLD) and CF Industries (CF) all fell below buy points or early bids. Hot chip names like phototronics (PLAB) sold hard.
Investors should aim to reduce exposure and limit losses.
Enphase Energy (ENPH) holds up well, but tests an important level. Pinduo duo (PDD) remains close to a buying point after Monday’s earnings gap, but is somewhat isolated in terms of Chinese internet browsing. Celsius (CELH) finds support at its 21-day line.
In the meantime, Apple (AAPL) undercut the 200-day moving average. Tesla (TSLA), which had reached resistance around the 200-day line, is now moving towards the 50-day line.
After the closure, CrowdStrike (CRWD) reported better-than-expected revenue and earnings for the second quarter, with the cybersecurity firm also delivering a modestly higher score. CRWD shares were flat in overnight trading. Shares fell 0.5% to 62.83 during Tuesday’s regular session, just above the 50-day line. CrowdStrike stocks are well below the 200-day sliding mark.
CELH stocks and Steel Dynamics are on the IBD leaderboard. Tesla stocks, CF Industries, Celsius and Enphase Energy are all on the IBD 50. CF Industries and ENPH stocks are on the IBD Big Cap 20. Enphase is Tuesday’s IBD stock.
The video in the article discussed Tuesday’s market action and analyzed AR stocks, Steel Dynamics and Pinduoduo.
Dow Jones Futures Today
Dow Jones futures rose 0.1% relative to fair value, while S&P 500 futures and Nasdaq futures changed little.
Keep in mind that an overnight action in Dow futures and elsewhere does not necessarily lead to actual trading in the next regular trading session.
Join IBD experts as they analyze actionable stocks during the stock market rally on IBD Live
stock market rally
The stock market rally briefly tried to gain a foothold, but then broke through key support levels on the back of strong economic data. Major indices closed out session lows.
The number of vacancies rose unexpectedly in July, the Ministry of Labor reported Tuesday, after a major upward adjustment to June. This indicates a large, unmet demand for labour. That will keep fears of a wage-price spiral high, even as gasoline prices fall and commodity prices fall. On Friday, the Ministry of Labor will publish the August jobs report.
The Dow Jones Industrial Average fell 1% in trading on Tuesday. The S&P 500 index and Nasdaq composite lost 1.1%. The small-cap Russell 2000 lost 1.4%.
The price of crude oil in the US fell 5.5% to $91.64 a barrel, more than canceling out Monday’s solid gains. An OPEC+ official told Russia’s state-owned company TASS that the cartel and its allies are not considering cutting supplies. Gasoline futures were down 6.4%. Natural gas prices fell by 3.2% as Europe fills winter storage ahead of schedule and signals to intervene in energy prices to limit price increases.
10-year government bond yields remained stable at 3.1%, offsetting intraday highs of 3.15%. Two-year Treasury yields rose 3 basis points to 3.46% amid rising expectations from the Fed. The yield curve continues to invert, a warning of a recession.
One of the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 3.7%, while energy and commodity names took the FFTY. The iShares Expanded Tech-Software Sector ETF (IGV) fell 0.2%. The VanEck Vectors Semiconductor ETF (SMH) lost 1.1%.
SPDR S&P Metals & Mining ETF (XME) plunged 4.3%, with STLD stocks being a major component. The Global X US Infrastructure Development ETF (PAVE) fell 2.2%. The Energy Select SPDR ETF (XLE) fell 3.4%. The Health Care Select Sector SPDR Fund (XLV) fell 0.7%.
Due to more speculative story stocks, ARK Innovation ETF (ARKK) fell 0.5% and ARK Genomics ETF (ARKG) lost 1.9%. Tesla stocks remain a top spot in Ark Invest’s ETFs.
Five best Chinese stocks to watch right now
Stocks to watch
ENPH shares were up 0.3% to 285.77, with support on the 21-day line. Enphase stocks have been trading relatively tight in recent weeks after skyrocketing on earnings from late July to the August 8 high of 308.88. Ideally, ENPH stock would be forging a new base, although investors could use a move above Friday’s high as an early entry.
PDD shares rose 0.7% to 66.50. On Monday, shares jumped 15% to 66.04 on the burst of Pinduoduo gains. PDD stocks briefly topped the 68.81 cup bottom buy point during the day, according to MarketSmith analysis. Last week, Pinduoduo shares rose 25%, fueled by an audit deal between the US and China that should end a threat of delisting for NYSE-traded Chinese companies.
Pinduoduo stands out though, with e-commerce rival Alibaba (BABA) struggling along with the most notable Chinese stocks.
CELH shares fell 0.5% to 104.43, the third consecutive decline. But shares of the energy drink maker found support near the 21-day line. Celsius stocks are clearly below a buy point of 109.84 on a huge basis, so investors who have bought or added shares at the time want to at least trim those buys. Still, CELH stock is holding up relatively well in the context of its massive movement since early May.
AAPL stocks were the only megacap stocks to have consistently traded above the 200-day line over the past month. But on Tuesday, stocks fell 1.5% to 158.91, below that important level that offered an early entry a few weeks ago. Apple stocks are looking forward to a return to the 50-day line, already hitting the 10-week average. While a buy point of 176.25 is still in play, the recent trend is no longer the friend of the Dow Tech Titan.
TSLA shares fell 2.5% to 277.70, the fourth consecutive loss since the 3-for-1 split, although they all came in at anemic volume. As with AAPL stocks, the EV giant is dropping to its 50-day line and testing its 10-week. Tesla stocks are beginning to lose sight of the 200-day line high above it, and some aggressive entries.
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Market rally analysis
The stock market rally has struggled since the S&P 500 met resistance near the 200-day moving average on Aug. 16, with sales increasing amid Fed chief Jerome Powell’s aggressive speech last Friday.
On Tuesday, the major indices all fell below their 50-day moving averages. The small-cap Russell 2000 and S&P 400 MidCap are moving quickly to that important level.
The likelihood of a third consecutive 75 basis point rate hike in September actually fell on Tuesday, but to a still high 68.5%. But markets are slightly more confident of a half-point move in November and a quarter-point hike in December, closing the year with a fed funds rate of 3.75%-4% versus 2.25%-year. 2.5% now.
Fed chief Powell and other policymakers say they will keep interest rates high for some time to come, suggesting a clear recession may be needed to cool labor markets and underlying inflationary pressures. And beyond Fed rate hikes, super-tight job markets are weighing down corporate profit margins.
Leading stocks stumble, with recent energy surges faltering or failing. Antero Resources slipped 8.1% on Tuesday, following an early entry due to a handle that was too low. After last Thursday’s breakout, Steel Dynamics stock fell 5.6% on Tuesday after holding up well. Fertilizer leader CF Industries lost 6.5% after dropping 4.2% on Monday to close a fraction below a buy point.
Can these stocks bounce back and regain buy points or quickly set up new items? Sure, but they can also break.
Apple and Tesla stocks are showing even the better mega-cap names faltering, a bad sign for the major indices.
Solar stocks are winners. But even Enphase’s stock hasn’t shot up in recent weeks. Apart from that, the red-hot Celsius stock is doing relatively well, but still losing some ground.
The recent uptrend looks more and more like a bear market rally on its last legs. Perhaps major indices will test or undercut their June lows. They may be between the mid-June lows and the mid-August highs. Or perhaps the market rally will gain a foothold and soon march above the 200-day mark and beyond.
But right now the market is not doing well.
Time the Market with IBD .’s ETF Market Strategy
What to do now
This is a time to reduce overall exposure. Even beyond portfolio management, investors should reduce losses or exit with scant gains on recent new purchases that have backfired.
For stocks that hold up, like Celsius, and there are always a few, investors can still consider taking at least partial profits. If the market continues to weaken, there is a good chance that even resilient stocks will eventually collapse.
Keep working on watchlists. The market rally could recover, with new buying opportunities from handles or pullbacks. If you’re so inclined, you can also make watchlists of possible shorts, just in case the market tries to bounce and then falters.
Read The Big Picture every day to stay up to date on market direction and leading stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock updates and more.
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