Futures Signal Rally Isn’t Finished After Support Broken

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Dow Jones futures rose Wednesday morning, along with S&P 500 futures and especially Nasdaq futures. The stock market rally came under further pressure Tuesday, with the major indexes all falling below their 50-day moving averages and leading stocks struggling.

A surprising jump in job openings raised expectations for big Fed rate hikes, triggering Tuesday’s market retreat. Crude oil and natural gas prices plunged, sending energy stocks tumbling, with other commodity plays also retreating. Antero Resources (AR), Steel Dynamics (STLD) and CF Industries (CF) all tumbled below buy points or early entries. Hot chip names such as Photronics (PLAB) have sold off hard.

Investors should be looking to reduce exposure and cut losses.

Enphase Energy (ENPH) is holding up well, but is testing a key level. Pinduoduo (PDD) is holding near a buy point after Monday’s earnings gap, but is somewhat on its own in terms of Chinese internets. Celsius (CELH) is finding support at its 21-day line.

Meanwhile, Apple (AAPL) undercut its 200-day moving average. Tesla (TSLA), which had hit resistance around the 200-day line, is now heading toward its 50-day line.

After the close, CrowdStrike (CRWD) reported better-than-expected second-quarter earnings and revenue, with the cybersecurity firm also guiding modestly higher. CRWD stock were flat in overnight trade. Shares dipped 0.5% to 62.83 in Tuesday’s regular session, just above the 50-day line. CrowdStrike stock is well below its sliding 200-day line.

CELH stock and Steel Dynamics are on IBD Leaderboard. Tesla stock, CF Industries, Celsius and Enphase Energy are all on the IBD 50. CF Industries and ENPH stock are on the IBD Big Cap 20. Enphase is Tuesday’s IBD Stock Of The Day.

The video embedded in the article discussed Tuesday’s market action and analyzed AR stock, Steel Dynamics and Pinduoduo.

Dow Jones Futures Today

Dow Jones futures were up 0.2% vs. fair value. S&P 500 futures climbed 0.4%. Nasdaq futures rose 0.87. Futures still indicate the major indexes will open below their 50-day lines.

Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.

Crude oil futures sank 3%, back below $90 a barrel. U.S. natural gas prices rose 1% as Russia once again shut down the Nord Stream 1 pipeline to Europe for what it said will be three days of maintenance. European natural gas prices fell solidly.

Copper futures sank almost 3%.

The 10-year Treasury yield rose 3 basis points to 3.14%.

Cleveland Fed President Loretta Mester said Wednesday that she sees the fed funds rate rising above 4% by early next year and keeping it there through at least 2023.

A China manufacturing index edged up 0.4 point in August to 49.4, slightly better than expected. That’s still below the break-even 50 level. ISM’s U.S. manufacturing index is due Thursday morning.

Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live

Stock Market Rally

The stock market rally briefly tried to find its footing, but then broke through key support levels on strong economic data. The major indexes did close off session lows.

Job openings unexpectedly rose in July, the Labor Department reported Tuesday, after a big upward revision to June. That signals heavy, unfilled demand for labor. That will keep wage-price spiral fears high, even as gasoline prices tumble and goods prices retreat. On Friday, the Labor Department will release the August jobs report.

The Dow Jones Industrial Average fell 1% in Tuesday’s stock market trading. The S&P 500 index and Nasdaq composite lost 1.1%. The small-cap Russell 2000 gave up 1.4%.

U.S. crude oil prices tumbled 5.5% to $91.64 a barrel, more than wiping out Monday’s solid gain. An OPEC+ official told Russian state-owned TASS that the cartel and its allies are not mulling a supply cut. Gasoline futures plunged 6.4%. Natural gas prices skidded 3.2%, as Europe fills up winter storage ahead of schedule and signals moves to intervene in energy prices to limit price hikes.

The 10-year Treasury yield was flat at 3.1%, backing off intraday highs of 3.15%. The two-year Treasury yield climbed 3 basis points to 3.46% amid rising Fed rate hike expectations. The yield curve continues to invert, a recession warning.

ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) tumbled 3.7%, as energy and commodity names hammered the FFTY. The iShares Expanded Tech-Software Sector ETF (IGV) edged down 0.2%. The VanEck Vectors Semiconductor ETF (SMH) gave up 1.1%.

SPDR S&P Metals & Mining ETF (XME) tumbled 4.3%, with STLD stock a major component. The Global X U.S. Infrastructure Development ETF (PAVE) fell 2.2%. The Energy Select SPDR ETF (XLE) slumped 3.4%. The Health Care Select Sector SPDR Fund (XLV) retreated 0.7%.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) dipped 0.5% and ARK Genomics ETF (ARKG) shed 1.9%. Tesla stock remains a top holding across Ark Invest’s ETFs.

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Stocks To Watch

ENPH stock rose 0.3% to 285.77, holding support at the 21-day line. Enphase stock is trading relatively tightly over the past few weeks after skyrocketing on earnings from late July to the Aug. 8 high of 308.88. Ideally, ENPH stock would forge a new base, though investors could use a move above Friday’s high as an early entry.

PDD stock edged up 0.7% to 66.50. On Monday, shares leapt 15% to 66.04 on blowout Pinduoduo earnings. PDD stock briefly topped the 68.81 cup-shape bottoming base buy point intraday, according to MarketSmith analysis. Last week, Pinduoduo stock surged 25%, fueled by a U.S.-China auditing deal that should end a delisting threat for NYSE-traded Chinese firms.

However, Pinduoduo stands out, with e-commerce rival Alibaba (BABA) struggling, along with most notable Chinese stocks.

CELH stock edged down 0.5% to 104.43, its third straight decline. But shares of the energy-drink maker found support at the 21-day line. Celsius stock is clearly below a 109.84 handle buy point on a huge base, so investors who bought or added shares at that point may want to at least trim those purchases. Still, CELH stock is holding up relatively well in the context of its huge move since early May.

AAPL stock had been the only megacap stock that had consistently traded above its 200-day line over the past month. But on Tuesday, shares fell 1.5% to 158.91, below that key level, which had offered an early entry just a few weeks ago. Apple stock is eyeing a return to the 50-day line, already touching the 10-week average. While a 176.25 handle buy point is still in play, the recent trend is no longer the Dow tech titan’s friend.

TSLA stock fell 2.5% to 277.70, its fourth straight loss since its 3-for-1 split, though they’ve all come on anemic volume. As with AAPL stock, the EV giant is dropping toward its 50-day line and testing its 10-week. Tesla stock is starting to lose sight of its 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 hit resistance at the 200-day moving average on Aug. 16, with selling intensifying with Fed chief Jerome Powell’s hawkish speech last Friday.

On Tuesday, the major indexes all fell below their 50-day moving averages. The small-cap Russell 2000 and S&P 400 MidCap are moving quickly toward that key level.

The odds for a third straight 75-basis-point rate hike in September actually edged lower on Tuesday, but to a still-high 68.5%. But markets are slightly more confident in a half-point move in November and a quarter-point Fed rate hike in December, ending the year at a 3.75%-4% fed funds rate vs. 2.25%-2.5% now.

Fed chief Powell and other policymakers are stating that they will keep rates high for an extended span, and are hinting that a clear-cut recession may be needed to cool off labor markets and underlying inflation pressures. And setting aside Fed rate hikes, super-tight job markets are pinching corporate profit margins.

Leading stocks are stumbling, with recent energy breakouts faltering or failing. Antero Resources skidded 8.1% on Tuesday, below an early entry from a too-low handle. Steel Dynamics stock, after holding up great following last Thursday’s breakout, sank 5.6% Tuesday. Fertilizer leader CF Industries lost 6.5% after dropping 4.2% on Monday to close a fraction below a buy point.

Could these stocks rebound and reclaim buy points or quickly set up new entries? Sure, but they could also break down.

Apple and Tesla stock show that even the better megacap names are faltering, a bad sign for the major indexes.

Solar stocks have been winners. But even Enphase stock isn’t making headway over the past few weeks. Separately, red-hot Celsius stock is faring relatively well, but is still losing some ground.

The recent uptrend increasingly looks like a bear market rally on its last legs. Perhaps the major indexes will test or undercut their June lows. Perhaps they’ll be rangebound between the mid-June lows and mid-August peaks. Or perhaps the market rally will find its footing and soon march above the 200-day line and beyond.

But right now, the market is not acting well.

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What To Do Now

This is a time to be cutting back overall exposure. Even setting aside portfolio management, investors should be cutting losses or exiting with slim gains on recent new buys that have fallen back.

For stocks that are holding up such as Celsius, and there are always a few, investors may still want to consider taking at least partial profits. If the market continues to weaken, the likelihood is high that even resilient stocks will eventually succumb.

Keep working on watchlists. The market rally could rebound, with new buying opportunities from handles or pullbacks. If you’re so inclined, you could also create watchlists of possible shorts, in case the market tries to bounce and then falters.

Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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