Dow Jones Futures: Market Rally Halts As Fed Rate Hike Fears Intensify; What to do now

Dow Jones futures were little changed overnight, as were S&P 500 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 major stocks struggling.




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A surprising surge in job creation raised expectations for big Fed rate hikes, triggering the market’s pullback on Tuesday. Crude oil and natural gas prices plunged, sending energy stocks tumbling, while other commodities also retreated. Antero Resources (AR), steel dynamics (STLD) and CF Industries (CF) all fell below buy points or early entries. Hot chip names such as Phototronics (PLAB) sold hard.

Investors should seek to reduce their exposure and cut their losses.

Enphase Energy (ENPH) holds firm, but tests a key level. Pinduo-duo (PDD) is holding close to a buy point after Monday’s earnings gap, but is a bit alone in Chinese internet terms. Celsius (CELH) finds support on its 21-day line.

Meanwhile, Apple (AAPL) broke above its 200-day moving average. You’re here (TSLA), which had hit resistance around the 200-day line, is now heading towards its 50-day line.

After closing, CrowdStrike (CRWD) reported better-than-expected second-quarter earnings and revenue, with the cybersecurity firm also guiding slightly higher. CRWD stock fell slightly in overnight trading. Shares fell 0.5% to 62.83 in Tuesday’s regular session, just above the 50-day line. CrowdStrike’s stock is well below its rolling 200-day line.

CELH and Steel Dynamics shares are on the IBD ranking. Tesla, CF Industries, Celsius and Enphase Energy stocks are all on IBD 50. CF Industries and ENPH stocks are on 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, Steel Dynamics and Pinduoduo stocks.

Dow Jones Futures Today

Dow Jones futures were flat relative to fair value, while S&P 500 futures fell slightly and Nasdaq futures were about flat.

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


Join the experts at IBD 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 the back of strong economic data. Major indexes closed session lows.

Job postings rose unexpectedly in July, the Labor Department reported Tuesday, following a major upward revision in June. This signals a high unmet labor demand. This will keep fears of a wage price spiral high, even if gasoline prices fall and property prices fall. On Friday, the Department of Labor will release the August employment report.

The Dow Jones Industrial Average fell 1% in trading on Tuesday. The S&P 500 index and the Nasdaq composite lost 1.1%. Small cap Russell 2000 fell 1.4%.

U.S. crude oil prices fell 5.5% to $91.64 a barrel, more than reversing Monday’s strong gain. An OPEC+ official told Russian state-owned TASS that the cartel and its allies were not considering a supply cut. Gasoline futures fell 6.4%. Natural gas prices slipped 3.2% as Europe fills its winter inventories ahead of schedule and signals moves to intervene in energy prices to limit price increases.

The 10-year Treasury yield held steady at 3.1%, falling from intraday highs of 3.15%. The two-year Treasury yield climbed 3 basis points to 3.46% amid rising expectations for a Fed rate hike. The yield curve continues to invert, a warning of recession.

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Among the top ETFs, the Innovator IBD 50 ETF (FFTY) fell 3.7% as energy and commodities names hammered the FFTY. The iShares Expanded Tech-Software Sector ETF (IGV) edged down 0.2%. ETF VanEck Vectors Semiconductor (SMH) lost 1.1%.

The SPDR S&P Metals & Mining (XME) ETF fell 4.3%, with STLD stock a major component. The Global X US Infrastructure Development ETF (PAVE) fell 2.2%. ETF Energy Select SPDR (XLE) fell 3.4%. The SPDR health care sector fund (XLV) fell 0.7%.

Reflecting more speculative stocks, ARK Innovation ETF (ARKK) fell 0.5% and ARK Genomics ETF (ARKG) lost 1.9%. Tesla stock remains one of Ark Invest’s top ETF stocks.


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Stocks to Watch

ENPH stock rose 0.3% to 285.77, holding support at the 21-day line. Shares of Enphase have been trading relatively tight in recent weeks after surging on late July earnings to the August 8 high of 308.88. Ideally, ENPH stock would forge a new base, although investors could use a move above Friday’s high as early entry.

PDD stock edged up 0.7% to 66.50. On Monday, shares jumped 15% to 66.04 on Pinduoduo’s explosive earnings. PDD stock briefly rose above the 68.81 cup-shaped base buy point intraday, according to MarketSmith analysis. Pinduoduo stock jumped 25% last week, fueled by a U.S.-China audit deal that is expected to end a delisting threat for Chinese companies listed on the NYSE.

However, Pinduoduo stands out, along with its e-commerce rival Ali Baba (BABA) in trouble, as well as the most notable Chinese stocks.

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

AAPL stock was 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 offered early entry just weeks ago. Apple stock is looking at a return to the 50-day line, already touching the 10-week average. While a buy point of 176.25 is still in play, the recent trend is no longer friendly to the Dow tech titan.

TSLA stock fell 2.5% to 277.70, its fourth consecutive loss since its 3-for-1 split, although they all came on anemic volume. As with AAPL stock, the electric vehicle giant is falling towards its 50-day line and testing its 10-week. Tesla stock is starting to lose sight of its 200-day line 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 indices all fell below their 50-day moving averages. The small cap Russell 2000 and S&P 400 MidCap are rapidly moving towards this key level.

The odds 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 Fed rate hike in December, ending the year at a 3.75% fed funds rate. at 4% against 2.25% to 2.5% currently.

Fed chief Powell and other policymakers say they will keep rates high for an extended period and hint that a sharp recession may be needed to cool labor markets and underlying inflationary pressures . And Fed rate hikes aside, extremely tight labor markets are pinching corporate profit margins.

Major stocks stumble, recent energy breakouts wavering or failing. Antero Resources slipped 8.1% on Tuesday, below an early entry from an overhand grip. Steel Dynamics stock, after holding up well after last Thursday’s breakout, fell 5.6% on Tuesday. Fertilizer leader CF Industries lost 6.5% after falling 4.2% on Monday to close a fraction below a buy point.

Could these stocks rebound and recover buy points or quickly create new entries? Of course, but they could also break down.

Apple and Tesla stocks show even top megacap names faltering, a bad sign for major indices.

Solar stocks were winners. But even Enphase’s stock hasn’t risen in recent weeks. Separately, Celsius’ hot stock is doing relatively well, but is still losing ground.

The recent uptrend is looking more and more like a bearish rally. Perhaps the major indices will test or undermine their June lows. Perhaps they will be limited between the mid-June lows and the mid-August highs. Or maybe the market rally will find its way and soon break above the 200 day line and beyond.

But right now the market is not doing well.


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What to do now

Now is the time to reduce overall exposure. Even putting portfolio management aside, investors should cut losses or exit with small gains on recent new buys that have pulled back.

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, chances are that even resilient stocks will eventually succumb.

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

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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