The market rally sends a very bearish signal; 5 stocks to watch

Dow Jones futures rose slightly overnight, as did S&P 500 and Nasdaq futures. The stock market rally suffered heavy losses on Tuesday, with the Nasdaq and S&P 500 falling below a key level.




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Economic reports revived fears of recession and inflation. A report of Intel (INTC) Chip price declines due to PC weakness slammed stock and rival Intel Advanced micro-systems (AMD), as well as PC manufacturers and Microsoft (MSFT).

Meanwhile, Exxon Mobil (XOM), Vertex Pharmaceuticals (VRTX), Enphase Energy (ENPH), parent company of Google Alphabet (Google T You’re here (TSLA) are five stocks to watch, but for different reasons.

XOM stock edged higher, flirting with buy signals during the day after the diversified energy giant held up better than most oil and gas players. VRTX stock fell back below a buy point. ENPH stock fell in a handful as solar stocks fell. Shares of Google and Tesla have fallen solidly below recent buy points.

Google stock is on IBD Long-Term Leaders. Vertex and Enphase stocks are on the IBD 50 and IBD Big Cap 20. Exxon is the IBD stock of the day on Tuesday.

The video embedded in this article highlights stocks from Exxon Mobil, Google and VRTX.

Dow Jones Futures Today

Dow Jones futures were up 0.1% from fair value. S&P 500 futures advanced 0.1% and Nasdaq 100 futures climbed 0.1%.

The 10-year Treasury yield fell 4 basis points to 3.17%.

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 rally

The stock market rally opened higher, boosted by China reducing quarantine times for inbound travelers. But the major indexes quickly faded, led by the Nasdaq.

The Dow Jones Industrial Average fell 1.6% in Tuesday’s stock trading. The S&P 500 index slipped 2%, with ENPH stock among the worst performers. The Nasdaq composite fell 3%. The small cap Russell 2000 was down 1.85%.

Two economic reports hit the market at 10 a.m. ET. The consumer confidence index fell in June to its lowest since February 2021, while its expectations gauge hit a nine-year low. A gauge of inflation expectations hit a record high dating back to 1987. Meanwhile, the Richmond Fed’s manufacturing index was much weaker than expected, with the latest negative report on regional factories ahead of the manufacturing index American from the ISM on Friday.

Intel has reportedly slashed prices for Alder Lake processors as orders from PC makers are much weaker than expected. Intel stock fell 2.2%. Archrival AMD stock sold 6.2%, its lowest close in a year and just above its June 17 intraday low. Dell Technologies (DELL) and HP Inc. (HPQ) both lost 2.6%. Windows maker Microsoft fell 3.2%.

U.S. crude oil prices rose 2% to $111.76 a barrel. OPEC+ will hold its last meeting from Wednesday

The 10-year Treasury yield rose 1 basis point to 3.21%.

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Among the top ETFs, the Innovator IBD 50 ETF (FFTY) fell 2%, while the Innovator IBD Breakout Opportunities ETF (BOUT) fell 2.1%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 3.7%, with Microsoft stock being one of the top holdings. ETF VanEck Vectors Semiconductor (SMH) fell 2.5%, with the main components of Intel and AMD stocks.

The SPDR S&P Metals & Mining ETF (XME) and the Global X US Infrastructure Development ETF (PAVE) both fell 1.7%. The US Global Jets ETF (JETS) gave up strong opening gains to fall 0.8%. The SPDR S&P Homebuilders ETF (XHB) lost 2.1%. ETF Energy Select SPDR (XLE) gained 2.7%, with XOM stock being a strong component. The Financial Select SPDR ETF (XLF) slipped 1%. The SPDR healthcare sector fund (XLV) with VRTX stock as a component, fell 1.7%.

Reflecting more speculative stocks, ARK Innovation ETF (ARKK) plunged 5.9% and ARK Genomics ETF (ARKG) 5%. The TSLA stock remains one of the main holdings of Ark Invest ETFs.


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Stocks to Watch

Exxon Mobil stock hit 93.24 intraday, breaking above the 50- and 21-day lines while breaking a strong downtrend. This offered an aggressive entry. XOM stock pared gains to close 2.8% higher at 91.50 but held above the 50-day line. Exxon shares held up better than many oil and gas plays trying to rebound from their 200-day lines. Yet, ideally, investors may want to see XOM shares move sideways for a while and form a new base before trying to intervene.

Vertex shares fell 3.9% to 276.17, below an early entry of 279.23 after hitting a record high of 293.17 on Friday. VRTX stock could still be good, with Tuesday’s retreat on lighter volume and after a string of strong gains over the past week. But it is worth watching. The relative strength line for VRTX stocks is still near the highs.

Enphase stock fell 7.5% to 190.65, again finding support around its 21-day moving average. The ENPH stock is always in a deep grip in a double bottom base. The official buy point is 217.33, although investors could use a move above Monday’s high of 210.10 as an early entry. But ENPH shares and other solar stocks are volatile, a more difficult characteristic to manage in the current market climate.


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Tesla stock slipped 5% to 697.99 below its 21-day moving average. On Monday, TSLA stock reversed slightly after hitting resistance at its 10-week line. Unlike most megacap stocks, Tesla stock held above its late-May lows in June. Later this week, possibly Saturday, Tesla will release second-quarter delivery figures which are expected to show a substantial decline from the first quarter, reflecting the Shanghai factory closure and a slow recovery.

Tesla has cut hundreds of employees from its Autopilot team as part of mass layoffs at the electric vehicle giant, Bloomberg reported. CEO Elon Musk, who fears a likely recession, has repeatedly promised fully self-driving “this year” for nearly a decade. Tesla’s Full Self-Driving, which costs $12,000, is a Level 2 driver assistance system, a far cry from a Level 5 self-driving system.

Google stock fell 3.3% to 2,240.15, back below its 50-day moving average after breaking that key level on Friday. GOOGL stock also avoided undercutting its May lows during the June market selloff.

Market rally analysis

Major indexes started with decent gains on Tuesday, but quickly headed lower. The Dow Jones, S&P 500 and Nasdaq composite all fell below their 21-day moving averages.

The Nasdaq and S&P 500 fell below their Friday tracking day lows. This is a strong bearish signal. Research shows that there is a 90% chance that the rally will ultimately fail when this happens. The rally isn’t officially over until the indices hit their recent lows.

The Dow Jones did not close below its lows of the day, but it is not far off.

There were plenty of ugly reversals on Tuesday and stocks tumbled or fell below key levels.

Many megacaps, not just Tesla and Google stocks, hit resistance around the 50-day or 10-week lines, including MSFT stocks, Apple (AAPL) and Amazon.co.uk (AMZN). The same was true for XLV and ARKK ETFs.

Major stocks did not have a good day, with broad weakness. Pharmaceutical stocks, despite being defensive growth names, fell. Health insurers did not lose much ground, but gave up some bullish opening gains.

Oil and gas stocks could rally, but after rebounding from last week’s lows, many may need time to repair. XOM stock looks better, but even energy names may struggle if the market sells off.


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What to do now

With the market rally quickly facing selling pressure, investors should not add exposure, which should already be light. Instead, they may want to remove new posts. Many, like VRTX stock, are likely underwater with the Nasdaq below its FTD low and the S&P 500 almost there.

Much like driving in foggy conditions, it’s hard to know what lies ahead for the stock market, but the risks are high.

Keep working on watchlists. Stay engaged and ready to act.

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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