The Dow Jones Industrial Average rose as much as 230 points before paring gains the Wednesday morning before The Federal Reserve’s interest rate decision set for 2:00 PM ET, followed by Fed Chairman Jerome Powell’s press conference.
General Mills (GIS) was a mover on Wednesday, with shares rising more than 6% in morning trade after strong earnings results, although sales missed estimates. Home builders KB Home (KBH) and Lennar (LEN) will report after closing.
Micron technology (MU) rose more than 1% even after Mizuho downgraded the stock to neutral from buy.
Elsewhere, a leader in electric vehicles Tesla (TSLA) traded 0.4% lower on Wednesday. Avg Dow Jones Industrialstechnological titans An apple (AAPL) and Microsoft (MSFT) were mixed afterwards today’s stock market open.
Top stocks to watch amid recent market weakness include Continental resources (CLR), DoubleVerify (DV) and Vertex Pharmaceuticals (VRTX) — as well as Dow Jones stocks Chevron (CVX) and Merck (MRK). Note that the new stock market correction is a good reason for investors to be mostly, if not entirely, on the sidelines.
DoubleVerify is IBD ranking shares, but the size of his position was reduced during last week’s losses. Tesla was listed in the column for stocks near a buy zone this week.
Dow Jones today: Treasury yields, oil prices, Fed meeting
After Wednesday’s open, the Dow Jones Industrial Average rose 0.6%, while the S&P 500 rose 0.65%. The tech-heavy Nasdaq Composite gained 0.35% in morning trade.
The yield on the 10-year Treasury fell to 3.54% on Wednesday, paring a new high from this week. Meanwhile, US oil and natural gas prices soared. Oil prices rose more than 2%, sending West Texas Intermediate futures above $86 a barrel.
The Federal Reserve’s two-day meeting will conclude on Wednesday with an interest rate decision at 2:00 PM ET and comments from Fed Chairman Jerome Powell at 2:30 PM The markets are showing an 82% expectation that the central bank will raise interest rates by 75 basis points and an 18% probability of a 100 basis point increase. Investors will be looking for clues about the pace of future rate hikes and how high the central bank will ultimately go.
Adding it all up, markets expect the Federal Reserve’s key interest rate to end this year with a target range of 4%-4.25% or, slightly more likely, 4.25%-4.5%. And that may not be all. Odds are above 50% for another quarter-point hike to a range of 4.5%-4.75% next March or May, according to CME Group FedWatch page.
Stock market correction
On Tuesday, the stock market reported another disappointing performance. The Dow Jones Industrial Average lost 1 percent, while the S&P 500 fell 1.1 percent, both off their Friday lows.
The Big Picture column on Tuesday commented: “Amid expectations of a hawkish statement, the stock market may not like what the Fed has to say on Wednesday. A tradable rally could eventually lift the Nasdaq back to the 12,000 level. But this is still a spreading market, so a trip to the June lows could also be in the cards.”
To prepare for another rally in the stock market, investors should wait until the following day. When the market is in a correction, look for at least one major index to try for a bottom.
The first day the index closed higher is considered Day 1 of its rally attempt. Action on Day 2 and Day 3 is irrelevant until the index breaks its last low. If this bottom is broken, the rally has been attempted and the market must try again.
On Day 4 and beyond, look for the Nasdaq or S&P 500 to rise sharply on higher volume than the previous session. It is following day. This gives investors the go-ahead to start buying leading stocks breaking past correct buy points. It should synchronize your portfolio and mindset with the actions of the stock market by gradually committing capital to leading stocks.
During a stock market correction, don’t switch off. Instead, create watch lists to find emerging stock market leadership using line of relative strength. The RS line measures the stock’s price performance relative to the S&P 500. If the stock is outperforming the broader market, the RS line curves upward. If a stock lags the broad market, the line will point lower.
Dow Jones stocks to watch: Chevron, Merck
Dow Jones Chevron shares fell 0.4% on Tuesday, still hovering above crucial support around its 50-day line. Shares are trading about 6% off their last cup-handled buy point of 166.93 — according to IBD MarketSmith chart analysis — amid a strong performance by energy stocks so far this year. Shares were up 1.4% early Wednesday.
CVX shares showing a strong 97 out of a perfect 99 IBD Composite Rating, according to IBD Stock Check. Investors can use the IBD Composite Rating to easily gauge the quality of a stock’s fundamental and technical indicators.
Drug giant Merck is also trying to fight the downward trend in the stock market. The stock is forming a flat base that has a buy point at 95.82, but is stuck below its 50-day line and near its recent lows. Shares of Merck were up 0.3% early Wednesday.
Top stocks to watch: Continental, DoubleVerify, Vertex
Oil explorer and producer Continental Resources is creating a cup handle with a buy point of 72.80, according to IBD MarketSmith graph analysis. The relative strength line made a recent high last week, but remains just outside its 52-week high. Shares of CLR were trading up 1.7% early Wednesday.
Stocks in the IBD Ranking DoubleVerify remains below its 28.07 buy point in a bottom base after Tuesday’s 1.35% loss. DV shares were down 0.4% Wednesday morning.
Vertex Pharmaceuticals remained below its 50-day line despite a 0.6% gain on Tuesday. The stock is holding up well amid continued market weakness, as indicated by an RS line approaching new highs. There is no new base yet, but the stock’s resilience makes it a top idea to watch. Shares of Vertex rose 0.1% on Wednesday.
Tesla shares traded small on Tuesday as it nears a short-term buy point of 314.74. In the meantime, look out for additional buy points if the stock manages to climb further to the right of its larger consolidation that stretches back to January. Shares were down 0.4% Wednesday morning.
On the upside, the stock’s RS line is at its highest level since April. The stock is about 25% off its 52-week high.
Dow Jones Leaders: Apple, Microsoft
Between Dow Jones Stocks, Apple shares rose 1.6% on Tuesday, adding to Monday’s gain. Last week, the stock closed at its lowest level since July 18. Apple shares were trading down 0.1% on Wednesday morning.
Microsoft lost 0.85% on Tuesday, hitting a new 52-week low. The software giant is about 30% off its 52-week high. Microsoft shares were up 0.9% early Wednesday.
Be sure to follow Scott Lehtonen on Twitter at @IBD_SLehtonen for more information on growth stocks and the Dow Jones Industrial Average.
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