Market Rally Awaits CPI Inflation Report, Federal Reserve; 5 Stocks Setting Up

Dow Jones futures will open Sunday evening, along with S&P 500 futures and Nasdaq futures, with a focus on the CPI inflation report and the Federal Reserve.




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The stock market pulled back last week with the major indexes continuing to trend higher but then pulling back. It’s a tough environment to buy stocks.

Investors are getting a shot or two of big economic news this coming week. On Tuesday, the Labor Department will release the November CPI inflation report. On Wednesday afternoon, the Federal Reserve will raise rates again with Fed Chairman Jerome Powell hinting at further tightening in early 2023.

It can be a catalyst for big market gains or losses, or it can continue complex sideways movements. Investors may wait for the inflation report and Fed news before increasing exposure.

Breaks or breaks are common, with DXCM stock retreating on Friday after briefly clearing a buy point on Thursday on FDA approval.

But here are five stocks to watch: Dow Jones giants Mashot (CAT) and Goldman Sachs (GS), Sanmina (SANM), McKesson (MCK) and MercadoLibre (MELI). To be clear, none of these stocks are active, MELI stock in particular needs some work.

Microsoft (MSFT) is relatively good for megacaps The night (AAPL) below its 50-day line and Tesla (TSLA) is trying to avoid making new bear market lows. But MSFT stock remains well below its 200-day line and hasn’t made much progress in the past month.

The video included in the article reviewed and analyzed the market activity in depth Dexcom (DXCM), stock MercadoLibre and CAT.


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CPI Inflation And Fed Meeting

Early Tuesday, the Labor Department will release the consumer price index for November. Headline and core CPI inflation rates should cool over the next few months, if only because comparisons are becoming more difficult. But service prices have been stubbornly strong.

The Federal Reserve wants to see a more significant reduction in services inflation, as well as wage gains, before halting rate hikes. At 2:00 PM ET, the Fed is expected to raise its fed funds rate by 50 basis points, from 4.25% to 4.5%, ending a streak of four 75-basis point hikes. Investors will want some clues about the February meeting, and how high the fed funds rate might eventually go. Markets are now pricing in another half-point Fed rate hike in February, although there is a decent chance of a quarter-point move.

Fed Chairman Powell’s comments at 2:30 pm ET, along with the CPI inflation report, may set the tone for Fed policy heading into 2023.

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Powell and many policymakers have signaled that a recession may be needed to bring inflation under control.

Dow Jones Futures Today

Dow Jones futures open at 6:00 PM ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.

Remember that overnight activity in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular market session.


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


Stock Market Rally

The stock market has seen significant pullbacks for major indexes over the past week.

The Dow Jones Industrial Average fell 2.8 percent in last week’s market trade. The S&P 500 index lost 3.4%. The Nasdaq composite fell 4%. The smaller Russell 2000 index fell 5.1%.

The 10-year Treasury yield rose 6 basis points to 3.57%, up from 3.4% midweek.

US crude oil futures fell 11% last week to $71.02 a barrel, with gasoline futures down 9.8%. Both fell to 2022 lows. The price of natural gas decreased by 0.6%.

ETFs

Among the top growth ETFs, the iShares Expanded Tech-Software Sector ETF ( IGV ) fell 4.6%, with Microsoft Inc. being the biggest shareholder. VanEck Vectors Semiconductor ETF (SMH) retreated 1.7%.

In terms of more speculative stocks, the ARK Innovation ETF ( ARKK ) fell 9.2% last week and the ARK Genomics ETF ( ARKG ) fell 8.1%. TSLA Corporation is a massive holding in all of Ark Invest’s ETFs.

The SPDR S&P Metals & Mining ETF ( XME ) fell 6.4% last week. The US Global X Infrastructure Development ETF (PAVE) fell 2.85%. The US Global Jets ETF (JETS) fell 3.3%. The SPDR S&P Homebuilders ETF (XHB) fell 2%. The Energy Select SPDR ETF (XLE) fell 8.45%, decisively breaking its 50-day line. Financial Select SPDR ETF (XLF) retreated 3.9%. The SPDR Health Care Select Sector Fund ( XLV ) fell 1.3% after climbing in eight of the first nine weeks.


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Stocks Megacap

Apple stock has fallen 3.8% in the past week, falling below that key level on Tuesday and hitting resistance there on Friday. The bad news about iPhone production may be pricey, and AAPL stock is moving again.

Dow-friendly technology titan Microsoft also fell 3.8%, but held support at a 21-day line, with details above a 50-day line just rising. But it is well below the 200-day line. The MSFT stock is essentially flat against a month ago, as are the S&P 500 and the Nasdaq.

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Tesla’s stock is down 8.1% over the past week, despite a 3.2% pop on Friday. TSLA stock is falling on the downside of the recent bear market. Tesla announced new China incentives this past week with widespread media reports that the Shanghai factory will significantly cut production in the next few weeks, even halting production of the Model Y.


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Stocks To Watch

Last week, Caterpillar stock fell 3.7 percent to 227.29, breaking a 21-day low. The withdrawal may end up being a constructive shock. CAT stock has a buy point at 238 or 239.95 from a long-term basis. In another week, the heavy equipment giant Dow could have a favorable base with that 239.95 buy point. A slightly longer stop would allow the 50-day line to narrow the gap with CAT stock sooner rather than later.

Goldman’s stock fell 5.6 percent to 359.14 in the last week, a reversal from a bullish base with a buy point of 358.72, before rallying slightly above it. A strong break from here could offer a new entry, especially if it holds the 50-day or 10-week line. On a weekly chart, according to MarketSmith analysis, GS stock has a 13-month cash-in-hand basis, with a buy point of 389.68. Last week has now created more depth on that handle, which could be a solid base in a week.

The Sanmina stock fell 7.3 percent last week to 62.48. SANM stock consolidated strongly in the profit zone after October’s breakout from a cup base. Shares may begin a pullback toward the 50-day/10-week line, offering a buying opportunity, although the weekly drop was sudden. The SANM company also works on a possible departmental basis.

McKesson stock fell 4 percent last week to 371.37, falling below the 50-day and 10-week lines on Friday. MCK stock is working on a new rally after a sharp sell-off on November 10-11 that hurt many defense medical stocks. A move above the December 2 high of 389.45 could offer an early entry, still close to the moving averages.

The MELI stock fell 5.1 percent to 896.48, its fourth weekly decline. The Latin American e-commerce and payments giant has a buy point of 1,095.44, with a trend entry around 1,025. An aggressive entry could be a decisive reversal of MELI stock’s moving averages, with the December 2 high of 957 as encouraging. While MercadoLibre stock is down, the weekly losses come at a lighter rate with some relatively strong positive closings.

Market Rally Analysis

A week ago, the stock market rallied above its 200-day line for the first time in months, along with the S&P 500. But as investors reassessed the jobs report and Fed Chairman Powell’s comments, the major indexes retreated.

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The S&P 500 fell below its 200-day line, while the Nasdaq tested its 50-day. Both hit the 21-day resistance line at the end of the week. The Russell 2000 fell below its 200-day and 21-day lines and came right back to its 50-day, just below its 10-week line.

The Dow, which is leading the rally, is holding its 21-day round of support.

The S&P 500 is basically where it was after Nov. 10, when a full October CPI inflation report boosted stocks. The Nasdaq and Russell 2000 are back to their early November levels, but also their late October peaks.

If you had to design a scenario to trick investors into getting hit repeatedly, this current overtrend might be the blueprint: A market rally of several big one-day gains followed by a pullback over several sessions. .

It is still an acceptable market rally. However, further losses, such as the Nasdaq or especially the S&P 500 clearly breaking their 50-day lines, would be a concern.

Tuesday’s November CPI inflation report and Wednesday’s Fed meeting announcement and Powell’s comments could provide a catalyst for a sustained market rally, or a decisive sell-off. But they can also follow another big market pop that looks decisive, only to be followed by another pullback.


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What to do now

Investors should be wary of over-reactions until the CPI inflation report and the Fed meeting are in the mirror. Even as markets move on inflation data and Fed Chairman Powell’s comments, investors should be selective about new purchases if major indexes are only to retreat in the next few sessions.

At some point there will be a sustained and sustained market rally. When that happens, there will be plenty of buying opportunities.

So prepare your stock market holiday shopping list. A large number of stocks from various sectors are established or close to this.

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

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

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