Dow Jones futures rose modestly overnight, along with S&P 500 futures and Nasdaq futures. All eyes are waiting for the announcement of the Federal Reserve meeting and Fed chief Jerome Powell. Fed rate hike outlook signals will be key.
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The stock market rally closed modestly higher, however, after initially appearing on a tame CPI inflation report. Promising moves by leading stocks have generally fizzled or reversed lower.
Tesla ( TSLA ) fell into fresh bear market territory on Tuesday as sentiment turned decidedly bearish on the EV giant. TSLA stock has been sold in large volumes. CEO Elon Musk himself appeared to acknowledge Tesla’s concerns on Wednesday.
Among Dow Jones Megacap Techs, Apple ( AAPL ) erased a strong early gain on reports of a major change to its App Store model. Microsoft (MSFT) closed higher but hit key resistance.
Airline stocks sold hard as a JetBlue (JBLU) warning added to recent concerns about travel demand heading into 2023. United Airlines ( UAL ), which has flirted with buy points in recent weeks, fell on Wednesday.
Meanwhile, General Electric (GE), Goldman Sachs (GS) and Peabody Energy (BTU) have all found support at key levels and are nearing possible buy points. Peabody was Tuesday’s IBD Stock Of The Day.
The video embedded in this article discusses Tuesday’s market action and analyzes Tesla stock, GE and Peabody Energy.
Fed Rate Hike, Outlook
The Federal Reserve will almost certainly raise rates 50 basis points at 2 p.m. ET, after four straight Fed rate hikes of 75 basis points. What investors want are signals about Fed rate policy in early 2023.
After Tuesday’s CPI inflation report, markets are now leaning slightly toward a quarter-point rate hike on February 1.
The November consumer price index came in brighter than expected, with a 0.1% monthly gain, or 0.2% excluding food and energy. The CPI inflation rate fell to 7.1%, the lowest in a year and down from 7.7% in October. The core CPI inflation rate cooled to 6% from 6.3%.
The Fed will also release quarterly economic projections, along with policymakers’ rate hikes. That could provide insight into where policymakers see the “terminal” or peak fed funds rate.
Fed Chairman Jerome Powell will speak at 2:30 PM ET. His comments on inflation and recession risks and peak Fed rates will be critical for stocks and Treasury yields.
Dow Jones futures today
Dow Jones futures advanced 0.3% vs. S&P 500 futures rose 0.3% and Nasdaq 100 futures rose 0.35%.
Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally
The stock market rally got off to a strong start on Tuesday, with the major indexes clearing all near-term highs in the CPI inflation report. But the profits disappeared significantly.
The Dow Jones Industrial Average closed down 0.3% in Tuesday’s trading. The S&P 500 index rose by 0.7%. The Nasdaq Composite rose 1%. The small-cap Russell 2000 advanced 0.3%.
Apple stock rose as high as 149.97 intraday, but closed down just 0.7% at 145.47. That just retook the 50-day line. Apple will open up its iPhone and iPad devices to multiple app stores in Europe, Bloomberg reports, to satisfy European regulators. Apple has turned the App Store into a massive money-spinner in recent years.
Microsoft shares rose 1.75% to 256.92, closing above its December 1 high. But the shares were well off the morning high of 263.92. MSFT stock is right at the 200-day line, a key resistance area.
US crude oil prices rose 3% to $75.39 a barrel.
The 10-year Treasury yield fell 11 basis points to 3.5%, but off intraday lows of 3.43%. The two-year Treasury yield, more closely linked to Fed policy, fell 18 basis points to 4.22%.
ETFs
Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) rose 0.8%, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) rose 0.9%. The iShares Expanded Tech-Software Sector ETF (IGV) rose 1.6%, with MSFT shares a major component. The shares of the VanEck Vectors Semiconductor ETF today, price of SMH up 1.7%. ARK Innovation ETF ( ARKK ) reflecting more speculative stock stocks, fell 0.1% and ARK Genomics ETF ( ARKG ) rose 1.1%. Tesla stock is a major holding across Ark Invest ETFs, but especially ARKK.
SPDR S&P Metals & Mining ETF (XME) rose 0.8% and Global X US Infrastructure Development ETF (PAVE) 0.9%. US Global Jets ETF (JETS) fell 2.85%, with UAL shares and JetBlue both components. SPDR S&P Homebuilders ETF (XHB) gained 1.8%, with some builders and housing-related traders showing strength. The cost of shares Energy Select SPDR ETF The Financial Select SPDR ETF (XLF) and the Health Care Select Sector SPDR Fund (XLV) are both up 0.3%.
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Stocks to watch
GE stock fell 0.4% to 82.88 after topping its 21-day moving average intraday. General Electric closed a solid advance from a bottom base on Monday with an 81.40 buy point. On a weekly chart, GE shares found support at the 10-week moving average for the first time since the early November breakout. A strong bounce from these levels, perhaps above Tuesday’s intraday high of 84.90, would provide a buying opportunity.
GE’s earnings, although uneven, have rebounded in 2022, with even stronger growth seen next year.
GS stock also recently made a cup-base breakout and found support at the 10-week line, brushing below the 358.72 buy point. The investment bank rebounded this week. On a weekly chart, Goldman stock is working toward a 13-month cup-with-handle base with a 389.68 buy point, according to MarketSmith analysis.
On Tuesday, the stock rose 1.5% to 368.89, fractionally above its 21-day moving average but off intraday highs of 378.56. A move above Tuesday’s high could provide an early entry into GS stock.
Shares of Peabody Energy, Inc
BTU stock rose 2.2% to 28.47 on Tuesday, bouncing off its 50-day and 10-week lines but hitting resistance at the 21-day line. Peabody stock has a 32.99 handle buy point on a consolidation nearly eight months back. But BTU stock, like the general market, has a tendency of rapid advances followed by more gradual retreats, giving up much of the previous gains. A move above Tuesday’s intraday high of 29.08 could provide an early entry from both the 50-day and 21-day lines as well as breaking the downtrend from the grip.
Tesla stock price history
Tesla stock opened higher but quickly gave back gains and then turned sharply lower for a second straight session. Shares smashed through their Nov. 21 bear market lows, closing up 4.1% at 160.95. Volume was the heaviest in over a year, with several other high-trade pullbacks in the past few weeks.
It is possible that some large TSLA stock investors or mutual funds will sell shares as they break lower and as the year winds down.
More broadly, Tesla stock has lost about half its value just since the end of September. Sharp sell-offs were followed by tepid, short bounces.
On Tuesday, data showed that Tesla’s China vehicle registrations came in below forecasts last week. That adds to China demand concerns and comes amid widespread reports that Tesla’s Shanghai plant is slowing production, possibly suspending output at the end of the year.
Elon Musk acknowledged on Tuesday that Tesla’s demand is an issue. “Tesla will be great in the long run, but don’t control macroeconomic tides,” Musk tweeted.
While a weak global economy is likely a factor, Tesla also faces increasing competition, especially in China.
Meanwhile, Elon Musk’s Twitter dominance is weighing on Tesla stock. His attention seems to be on Twitter vs. the EV giant concentrated. Meanwhile, Musk’s increasingly partisan, trolling tweets have hurt his brand image, especially with Democrats. The concern for TSLA stock investors is that Elon Musk’s negatives will turn off potential Tesla EV buyers.
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Market Rally Analysis
The stock market rallied on Tuesday on the tame CPI inflation report, but quickly gave up many of those gains.
All the major indexes made their December 1st intraday highs shortly before the pullback. The S&P 500 closed back above its 200-day moving average. The Nasdaq continued to retreat from its 50-day and 21-day lines.
The Russell 2000 opened above the 200-day, but faded well below that level and finished below its 21-day line.
If the major indexes, especially the S&P 500, could move above their December 1 highs, it would be a bullish sign, but not necessarily definitive. The current market rally has a series of big one-day gains, soon followed by pullbacks that erase this action. That made it difficult to buy on power.
Not surprisingly, many stocks showed big bullish moves at Tuesday’s open, but fell back for small gains or outright losses. Megacaps are neutral at best, like Microsoft stock, laggards like Apple stock or outright losers like Tesla.
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What to do now
Tuesday’s market action shows why investors shouldn’t buy right at the open, especially when the major indexes end on news. It also shows why investors keep their emotions in check.
If the market rallies strongly on Wednesday’s Fed rate hike and Fed Chairman Powell’s comments, there will likely be some buying opportunities. But add exposure gradually, use early entries and pullbacks for slightly safer entries.
Until the market rally changes from choppy action to a sustained uptrend, increasing exposure is risky.
Many stocks from different sectors are listed. So you want to be prepared to work on your watch lists. Stay engaged so you can trade as stocks have clear buy points.
Read The Big Picture daily to stay in sync with market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter @IBD_ECarson for stock market updates and more.
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