Dow Jones futures fell slightly overnight, along with S&P 500 futures and Nasdaq futures. The stock market fell sharply on Wednesday after the Federal Reserve again hiked aggressively and signaled a higher peak, or “terminal” rate.




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This is a stock market correction. Investors should remain cautious but look for leading names.

Celsius Holdings (CELH), Shockwave Medical (SWAV), ATI (ATI), GlobalFoundries (GFS) and Enphase Energy (ENPH) all indicate strong relative strength in a weak market.

Shares of CELH and Shockwave Medical are on the market IBD ranking watch list. Shares of Celsius Holdings, Enphase and SWAV are at IBD 50. ENPH shares are at IBD Big Cap 20. Celsius was on Wednesday IBD Stock of the Daywhile Shockwave was on Monday.

The video embedded in this article discusses Wednesday’s rollercoaster market action and analyzes shares of Celsius, ATI and GFS.

Fed meeting

As expected, the Fed raised its key interest rate by 75 basis points for the third straight meeting, lifting the target range to 3%-3.25%.

Federal Reserve policymakers now see the Fed funds rate at 4.4% at the end of 2022, up from 3.4% after the June meeting. Here’s what markets are pricing in: Another 75 basis points at the November meeting, followed by 50 basis points in December, for a year-end range of 4.25%-4.5%.

The central bank also signaled some tightening in 2023, forecasting a fed funds rate of 4.6% at the end of next year, up from a forecast of 3.8% in June. This is also not inconsistent with market watchers’ expectations for the terminal price. Policymakers expect the rate to retreat to 3.9% in 2024.

Fed chief Jerome Powell reiterated that the central bank will not back down against inflation. He noted that a “soft landing” would be difficult, but did not say what the chances of a recession were. “At some point” the Fed will slow the pace of rate hikes, Powell said, but did not specify when that might happen. He added that Fed policy will have to remain “tight” for some time.

Fed chief Powell said the labor market remains “out of balance,” though he added that commodity prices appear to have peaked.

Dow Jones futures today

Dow Jones futures were down 0.1% at fair value. S&P 500 futures fell 0.2%. Nasdaq 100 futures were down 0.4%.

Remember this night action in Dow futures and elsewhere does not necessarily become an actual trade in the next regular Stock Exchange session.


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Stock market Wednesday

The stock market rose modestly after the Fed meeting decision, then went on a roller coaster ride that ended at session lows.

The Dow Jones Industrial Average fell 1.7% on Wednesday Exchange Trading. The S&P 500 also fell 1.7%. The Nasdaq Composite fell 1.8%. The small-cap Russell 2000 fell 1.5%

U.S. crude oil prices fell 1.2 percent to $82.94 a barrel.

The yield on the 10-year Treasury fell 6 basis points to 3.51%, after briefly reaching 3.62% following the Fed’s rate hike. The yield on the two-year Treasury rose above 4%, closing around 4.04%, but well above session highs.

ETFs

Avg the best ETFsInnovator IBD 50 ETF (FFTY) fell by 1.8%. iShares Expanded Tech-Software Sector ETF (IGV) gave up 1.4%. VanEck Vectors Semiconductor ETF (SMH) lost 0.8%.

SPDR S&P Metals & Mining ETF (XME) fell 2.1%, while the US Global Jets ETF (STREAMS) fell 4% on a bad day for travel. SPDR S&P Homebuilders ETF (XHB) lost 1.1%. Energy Select SPDR ETF (XLE) fell 1.5%, and the Financial Select SPDR ETF (XLF) 2.1%. Select Healthcare Sector SPDR Fund (XLV) decreased by 1.7%.

Reflecting the more speculative stocks of history, the ARK Innovation ETF (ARKK) lost 2.65% and the ARK Genomics ETF (ARKG) 2.7%.


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CELH shares

Shares of Celsius fell 3.9% to 98.23 on Wednesday. The stock pulled back to find support at its 10-week moving average after a 209% rally from early May to late August. In a few more weeks, CELH shares may have a new base at 118.29 point of purchase. Investors could use 108.47 as an early entry for the energy drink maker.

The line of relative strength for CELH shares are right at record highs.

Shockwave Stock

Shares of SWAV sank 1.85% to 284.69 on Wednesday, having reversed an intraday low of 300.96. Shockwave stock continues to find support around its 21-day line.

ATI Stock

Shares of ATI lost just over 2% to 29.67, trading around its 21-day line after retreating from a seven-year high of 33.31. Shares of the specialty alloys maker retreated to the top of the previous base and slightly above its 10-week line. A 10-week line bounce can provide an early entry, with a suitable base after another week.

While ATI’s stock has pulled back, its RS line is right on top.

GFS shares

Shares of GlobalFoundries fell 0.9% to 56.29. That’s just above the 50-day and the brand new 200-day line, while GFS shares are just below the 10-week line. The 2021 chip foundry IPO is very deep double bottom base with handle offering 66.06 point to buy. At the end of this week, the GFS stock handle will be long enough to be its own base, with the same entry of 66.06.

ENPH Stock

Enphase shares were down 15 cents at 304.56, continuing to find support from their 21-day moving average. ENPH stock is still extended from its 50-day line, but is getting smaller. The RS line for Enphase stock is hitting new weekly highs.

Stock market analysis

As usual, the stock market got rattled by the Fed’s rate hike decision, new rate forecasts and Powell’s comments, briefly rallying strongly before eventually closing with sharp losses. The major indexes ended up having ugly, outward reversal sessions down.

While markets weren’t dazzled on Wednesday, the Fed’s overall tone was likely a little more hawkish than expected. But in the end, the Federal Reserve is raising interest rates aggressively despite rising recession risks to bring inflation back into its fold.

Markets will often have a reaction to the Fed in day two. But even if the stock recovers on Thursday, it won’t make sense.

All major indices broke recent intraday lows on Wednesday and lost sight of their 50-day moving averages. The June lows are not that far away.


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What should we do now

In the end, it’s not the news that matters, but the market reaction to the news. And the stock market didn’t react well to the Fed’s meeting decision on Wednesday.

Could the market get a short-term bounce or even a decent rally for a few weeks? Sure. But investors will want to see a lot more evidence.

Leading stocks such as Celsius, Shockwave and Enphase may give flash buy signals at the start of a market rally attempt. But investors must balance the desire to get into hot stocks quickly with making sure that a broad uptrend is underway. If the market bottoms out in June or beyond, even the relative leaders are likely to collapse.

If a true stock market rally takes hold, there will be plenty of opportunities. The key is to be prepared.

Work on those watch lists. Focus on stocks with strong relative strength and those names that hold or retrace key moving averages.

Read it The big picture every day to stay in sync with market direction and leading stocks and sectors.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

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