Dow Jones futures rose slightly overnight, as did S&P 500 and Nasdaq futures. The stock market correction had a mixed session on Tuesday, as Treasury yields continue to climb sharply. Investors are focused on Wednesday’s Federal Reserve meeting announcement, with policymakers expected to approve a big or very big Fed rate hike.
Quantum Services (REP), EquityHealth (HQY), Energy Cheniere (LNG), dollar tree (DLTR) and Li-Auto (LI) are stocks to watch. All are showing strong relative strength lines, even as stock prices struggle to hold up.
The LNG stock is on the IBD classification. PWR stock is on the ranking watch list and on the IBD Big Cap 20. Li Auto stock is on the IBD 50. HealthEquity was Tuesday’s IBD stock of the day.
The video embedded in the article discusses the market action and analyzes the stocks of Cheniere Energy, Li Auto and DLTR.
Meanwhile, Tesla (TSLA) reversed slightly after hitting its May 24th low at 620.54. Tesla stock closed 2.4% higher at 662.67, but far from its November high of 1,243.49. The National Highway Traffic Safety Administration is likely to release crash data involving driver assistance systems in the coming days, singling out the high number of incidents related to Tesla Autopilot. The NHTSA has developed a Tesla Autopilot probe.
A two-day Fed meeting ends Wednesday with an announcement at 2 p.m. ET, followed by Fed Chief Jerome Powell’s press conference. In the wake of Friday’s CPI report which showed inflation hitting a 40-year high of 8.6%, speculation grew that Fed policymakers would raise rates by 75 basis points on Wednesday, and not just 50 basis points.
The Fed doesn’t like to surprise, and Powell said after the Fed’s May meeting that 75 basis points was out of the question. There is still a possibility that the central bank will raise rates by 50 basis points, with Powell signaling that 75 basis points are on the table for July and September.
But after Fed officials apparently disclosed to the Wall Street Journal on Monday that a sizable rate hike was being considered, markets view a 75 basis point move as extremely likely.
Dow Jones Futures Today
Dow Jones futures were up 0.5% from fair value. S&P 500 futures advanced 0.6%. Nasdaq 100 futures jumped 0.8%.
The 10-year Treasury yield fell 2 basis points to 3.46%.
Bitcoin price traded near $22,000, up slightly from Monday night’s 18-month low below $21,000.
Remember that overnight action on futures contracts on Dow Jones 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 tuesday
The stock market traded mixed during Tuesday’s session, with light volume ahead of Wednesday’s Fed meeting announcement.
The Dow Jones Industrial Average fell 0.5% in trading on Tuesday. The S&P 500 index fell 0.4%. The Nasdaq composite edged up 0.2%. The small cap Russell 2000 fell 0.4%.
The 10-year Treasury yield jumped 12 basis points to 3.48%, after huge moves in recent days. The two-year yield jumped 15 basis points to 3.43% The 30-year Treasury yield climbed 6 basis points to 3.43%, but is now below the 10-year yield and even with yield at 2 years. If the two-year yield crosses above the 10-year yield, the curve will reverse from the two-year yield to the 30-year yield. The rise and flattening of the yield curve reflects the risks of stagflation, with the likelihood of recession increasing as inflation and Fed rate hikes take their toll.
U.S. crude oil prices reversed lower to close down 1.7% at $118.93 a barrel.
Natural gas prices fell 16%. The Freeport LNG terminal, closed due to a fire on June 8, will not reopen for 90 days and will not be fully operational until the end of the year. This means fewer natural gas exports.
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) rose 0.8%, while the Innovator IBD Breakout Opportunities ETF (BOUT) fell 0.6%. The iShares Expanded Tech-Software Sector ETF (IGV) climbed 0.6%. ETF VanEck Vectors Semiconductor (SMH) rose 0.7%.
The SPDR S&P Metals & Mining ETF (XME) fell 1.3% and the Global X US Infrastructure Development ETF (PAVE) fell 0.7%. The US Global Jets ETF (JETS) fell 1%. The SPDR S&P Homebuilders ETF (XHB) fell 0.8%. ETF Energy Select SPDR (XLE) edged up 0.2% and ETF Financial Select SPDR (XLF) fell 0.9%. The Health Care Select Sector SPDR Fund (XLV) fell almost 1%.
Reflecting more speculative stocks, ARK Innovation ETF (ARKK) rose 1.1% and ARK Genomics ETF (ARKG) rose 1.3%. Tesla stock remains one of Ark Invest’s top ETF stocks.
Five best Chinese stocks to watch now
Stocks to Watch
Quanta Services stock fell 1.8% to 123.55 on Tuesday, just above its 50-day line. The PWR stock is in a handle cup base with a buy point of 138.56.
HealthEquity stock jumped 5.9% to 68.42 on Tuesday, rebounding from its 50-day line, erasing some short-term levels and breaking a trendline. In a better market, Tuesday’s action would have offered early entry. At this point, the HQY stock is now extended from this entry. It is approaching an official buy point of 72.80 from a cut basis. HealthEquity has nearly doubled since early December after a long recession, while earnings have trended lower for several quarters.
LNG stock gained 2.2% to 130.40, still below the 50-day moving average. Cheniere stock broke through its consolidation low on Monday, potentially setting the stage for a double bottom with a buy point of 146.45. Cheniere Energy, with its LNG export terminal, stands to benefit from the Freeport LNG terminal woes, which have reduced domestic natural gas prices and pushed up global LNG prices.
DLTR stock edged up 0.65% to 156.02, hitting resistance at its 50-day line. Dollar Tree stock has a buy point of 166.45 handle cups, according to MarketSmith analysis. Stocks plunged and rebounded in the second half of May on the first Target (TGT) failure and earnings warning, followed by strong earnings and Dollar Tree guidance.
Li Auto stock jumped nearly 11% to 32.22, hitting its best level since Jan. 3. Shares climbed from 18.82 on May 9, bouncing above the 200-day line on June 6. deep consolidation, with a potential buy point of 37.55. But stocks could use a long handle or even a distinct base within the deep consolidation to let the major averages catch up, especially the 50-day line. Li Auto soars with other electric vehicle stocks in China Nio (NIO), Xpeng (XPEV) and BYD (BYDDF), as Covid headwinds ease, local governments increase subsidies for electric vehicles. Automakers all have new models in the coming weeks, with Li Auto unveiling a new hybrid SUV later this month. More broadly, U.S.-listed Chinese stocks, including the internet, have rallied in recent weeks.
The Dow Jones, S&P 500 and Nasdaq composite all topped Monday’s lows, but closed mixed. The Russell 2000 has surpassed its May lows, reaching its worst levels since November 2020. The small cap index is below its pre-Covid highs.
Given the huge Fed meeting scheduled for Wednesday afternoon, Tuesday’s low-volume market action isn’t all that significant.
Whether the Federal Reserve raises rates by 50 basis points or 75 basis points on Wednesday, the macroeconomic climate is not supportive of the market, and may not be for some time to come. Recession risks are high, while inflation will remain elevated for the foreseeable future.
Still, the reaction to the news is what really matters. The stock market could rebound from Wednesday’s Fed rate hike and Powell’s comments, but that in itself wouldn’t signal a change in character. Investors need to see a follow-up day to confirm any rally attempt. Even then, a confirmed uptrend could be another short-lived bearish rally.
Right now, the Nasdaq composite and the S&P 500 are in bear markets, while the Dow Jones is in a sharp correction.
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What to do now
A bear market is not the time to be brave. Investors should stay on the sidelines. The only exceptions might be long-term winners or certain positions in the energy sector, but even then investors should consider taking at least partial profits.
Right now, investors should be working on their watchlists, reviewing past trades and historic bear markets.
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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