Dow Jones futures open Sunday night along with S&P 500 futures and Nasdaq futures with the focus on the Federal Reserve meeting.
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The stock market suffered damaging losses last week on a surprisingly hot CPI inflation report, along with some dismal earnings reports or warnings. Major indices fell below their 50-day moving averages and undercut a few more key levels on Friday. Many leading stocks also struggled.
It’s a time for investors to have at most minimal exposure. Create watch lists of stocks that boast strong relative strength and are holding key levels. Tesla (TSLA), Enphase Energy (ENPH), Celsius Holdings (CELH), wolf speed (WOLF) and Apex Pharma (VRTX) all qualify.
Of course, Tesla stock, Enphase, etc. are looking robust now, but they may not be in the coming days. Many stocks looked strong until last Tuesday. Others looked solid through Thursday or Friday.
WOLF stock is on the IBD Leaderboard watch list. Tesla, Enphase and CELH stocks are in the IBD 50. ENPH stocks and Vertex are in the IBD Big Cap 20.
Fed meeting
The Fed meeting is on September 20th and 21st. Markets boosted expectations of a third straight Fed rate hike by 75 basis points after Tuesday’s CPI showed strength outside of gasoline. (There is a slim chance of a gargantuan 100 basis point move.) Investors will focus on what Fed policy suggests going forward.
The Fed’s quarterly forecasts will signal where policymakers see interest rates further out.
Currently the market is biased for another 75 basis point rate hike in November followed by 25 or 50 basis points in December. That would push the Fed funds rate down to either 4% to 4.25% or 4.25% to 4.5% versus 3.75% to 4% expectations prior to the CPI report.
Fed Chair Jerome Powell will provide his comments after the 2:30pm ET meeting. Powell made it crystal clear in his August 26 Jackson Hole speech that the Federal Reserve would not repeat its mistakes of the 1970s by easing monetary policy too quickly.
Dow Jones futures today
Dow Jones futures open at 6:00 p.m. ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
China’s Chengdu said the Covid lockdown would end in an “orderly manner”, with public transport and normal work resuming on Monday but still with significant restrictions. The southwestern city of more than 21 million people was shut down on September 1, adding to China’s economic woes. Chengudu could increase optimism about China’s economy, but the “zero Covid” policy means severe restrictions across the country pose a constant threat.
Keep in mind that overnight action in Dow futures and elsewhere doesn’t necessarily translate to actual trading in the next regular trading session.
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stock market last week
The stock market suffered sharp losses last week, reversing sharply on Monday after solid gains.
The Dow Jones Industrial Average fell 4.1% in trading last week. The S&P 500 index fell 4.8%. The Nasdaq Composite fell 5.5%. Small cap Russell 2000 fell 4.5%.
The 10-year Treasury yield rose 13 basis points to 3.45%, the seventh consecutive weekly gain. At some point on Friday, the 10-year yield hit 3.483%, which was exactly the same as the 11-year high posted on June 14th.
US crude oil futures fell 1.9% last week to $85.11 a barrel, the third straight weekly decline. Natural gas prices fell 2.7% but after a wild week of gains and losses.
ETFs
Among the best ETFs, Innovator IBD 50 ETF (FFTY) slipped 5% last week, while Innovator IBD Breakout Opportunities ETF (BOUT) lost 4.2%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 8.3%. The VanEck Vectors Semiconductor ETF (SMH) is down 6%.
The SPDR S&P Metals & Mining ETF (XME) is down 10.3% last week. The Global X US Infrastructure Development ETF (PAVE) 7.5%. The US Global Jets ETF (JETS) is down 5%. The SPDR S&P Homebuilders ETF (XHB) fell 6.9%. The Energy Select SPDR ETF (XLE) is down 2.7% and the Financial Select SPDR ETF (XLF) is down 3.9%. The Health Care Select Sector SPDR Fund (XLV) was down 2.3%
Reflecting more speculative story stocks, ARK Innovation ETF (ARKK) fell 4.5% last week and ARK Genomics ETF (ARKG) fell 5.3%. Tesla stock is a key position in Ark Invest’s ETFs.
The five best Chinese stocks to watch right now
ENPH share
Enphase shares rose 4% over the past week to 318.01 and continued to find support at a rising 21-day moving average. A pullback to the 21-day, perhaps a break to catch up with the 50-day, could present a safer buying opportunity. A number of solar games are still looking strong.
Celsius stick
CELH shares fell 4.9% last week to 100.70 but found support at the 10-week moving average. A move above Thursday’s high 108.37 could offer an aggressive entry. In a few weeks, Celsius stock could have a new base with a buy point of 118.29.
WOLF camp
EV-focused chipmaker Wolfspeed rose 5.25% to 120.21 last week, including Friday’s 2.8% gain. Investors could consider 123.35 as a buy point for WOLF stock from a handle in a longer consolidation.
VRTX stock
Vertex shares fell 0.9% last week to 289.42 but rose 0.8% on Friday to surpass the 21-day, 50-day and 10-week lines. A move above 296.14 12th September high would provide early entry. It is possible that VRTX stock will have a flat base in a few days with a buy point of 306.05.
Tesla stock
Tesla shares rose 1.2% over the past week to 303.35 after rising 10.9% in the previous week. Shares of the EV giant held support at the 200-day moving average.
The relative line of strength for TSLA stock has improved significantly. hit a five-month high in the last two weeks. The RS line, the blue line in the provided chart, depicts a stock’s performance relative to the S&P 500 Index.
Investors could use a move above Thursday’s high 309.12 as an aggressive entry or 314.64 near-term high. That would still be a long way from a traditional buy point.
For all of these stocks, weak market conditions are now increasing the risks of any purchases.
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Stock market analysis
The stock market started the past week with a strong gain on Monday, which now seems a long time ago. Major indices plunged through their 50-day moving averages on Tuesday. On Friday, the Nasdaq and S&P 500 closed below their September and late July lows, even as they veered off their intraday lows.
The major indices have now given back more than half of their gains from mid-June to mid-August.
Yes, some leading stocks held up, but for every Tesla, Vertex, or Celsius, there were several quality stocks that suffered damaging losses
Tuesday’s CPI report not only inflicted serious technical damage on the market, it also undermined the broader bull market. Investors had bet that a dovish inflation report would spur the Fed to start raising rates at a slower pace, at least after September. Those hopes were pushed back.
It’s the second time markets have been too rosy on Fed policy. The summer rally was spurred in part by investors expecting the Fed to end rate hikes soon and then start cutting rates sometime in 2023. Powell’s Jackson Hole speech ended talk of a “Fed pivot” on rate cuts.
It’s possible Wednesday’s actual Fed meeting won’t be a big market move given how much investors have adjusted over the past three weeks.
Prices will go up and stay there for a longer period of time. The Fed is ready to plunge the US into recession to squeeze inflation.
Aside from falling jobless claims, which only added to Fed concerns, recent economic data has been disappointing. An environment of high inflation, high wages and low growth is a major challenge for any business.
The Disastrous FedEx (FDX) result and comment, mixed results out Adobe (ADBE) and warnings off Nukor (NUE) and US steel (X) reflect that companies have faced inconsistent or weak results over an extended period of time. The multinationals and exporters that dominate the S&P 500 could be particularly exposed given the strong dollar coupled with weakness in Europe and China.
Time the market with IBD’s ETF market strategy
What now
The stock market is not in good shape. Macroeconomic conditions are bad. Investors need to keep in mind that the market could undercut the June lows or remain range bound for weeks or even months until there is real clarity on the endgame of Fed rate hikes.
Investor engagement should be minimal. There’s nothing wrong with being 100% cash, especially when recent trades have gone against you.
Focus on building your watch lists and looking for stocks that are showing resilience. If the market stays weak, some of these names will falter while others will emerge. The key is to have a current list when market conditions improve and you are ready to take advantage of it.
Read The Big Picture every day to keep up to date with 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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