Futures Await Fed;  This is important

Dow Jones futures were little changed overnight, along with S&P 500 futures and Nasdaq futures, with the Fed meeting announcement in focus. Major indexes edged lower on Tuesday as the Federal Reserve began its two-day policy meeting.




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Tesla stock briefly gave an aggressive buy signal despite more signs of weaker than expected Tesla (TSLA) search in China. This comes among a large Ford Motor (Well) delivery cost warning as well as unfinished vehicles. Ford shares fell 12%, with General Motors (GM) down 5.6% despite the EV supply deal Hertz (HTZ).

In addition to Tesla chip makers On the semiconductor (ON) and Impinj (PI) show strength along with Neurocrine Biosciences (NBIX) and a lithium giant SQM (SQM).

An apple (AAPL) rose for the second session in a row. Apple shares remain below key levels. Meanwhile, fellow megacap stock technicians Microsoft (MSFT) and Google Parent Alphabet (GOOGLE) are at a 52-week low.

NBIX shares are included IBD ranking. Shares of TSLA and On Semiconductor, also known as Onsemi, are at IBD 50. It is in stock at IBD Big Cap 20. Impinj is Tuesday IBD Stock of the Day.

The video embedded in this article discusses Tuesday’s market action and analyzes Neurocrine Biosciences, Wolfspeed (WOLF) and PI stock.

Fed meeting

Politicians seem locked into a third consecutive rate hike by the Fed of 75 basis points, with an announcement at 2:00 PM ET on Wednesday. Markets really see little chance of a huge full swing.

The key is what the Fed sees now. The quarterly forecasts will indicate where the central bank sees the fed funds rate at the end of 2023 and under what economic conditions. Federal Reserve Chairman Jerome Powell made it clear in his August 26 speech in Jackson Hole that the Federal Reserve is willing to risk a recession to bring inflation under control.

Powell will speak at 2:30 PM ET, possibly dropping some hints about near-term Fed rate hikes. Markets are currently betting on a fourth move of 75 basis points in November, followed by 50 basis points in December. This would increase the fed funds rate at the end of the year to 4.25%-4.5% from 2.25%-2.5% currently. Ahead of August’s CPI report on September 14, markets were expecting 3.75%-4% at the end of 2022.

Dow Jones futures today

Dow Jones futures were roughly flat at fair value. S&P 500 futures and Nasdaq 100 futures were flat.

The yield on the 10-year Treasury note fell 2 basis points to 3.55%.

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 Tuesday

The stock market fell on Tuesday ahead of the announcement of the Fed meeting. A late afternoon bounce disappeared at the end.

The Dow Jones Industrial Average fell 1% on Tuesday Exchange Trading. The S&P 500 lost 1.1%. The Nasdaq Composite was down 0.95%. The small-cap Russell 2000 lost 1.4%.

Shares of Apple, a member of the Dow Jones, S&P 500 and Nasdaq composite, rose 1.6 percent to 156.90. Shares of AAPL hit resistance at its 21-day and remain below its 50-day and 200-day lines after last week’s big reversal down. But a decisive move above the 50-day and 200-day lines could suggest another early entry.

US October crude fell 1.5% to $84.45 a barrel. November crude oil futures, now almost a monthly contract, fell 1.7% to $83.94.

The yield on the 10-year Treasury note jumped 8 basis points to 3.57%, another 11-year high.

ETFs

Avg the best ETFsInnovator IBD 50 ETF (FFTY) declined by 1.3%. iShares Expanded Tech-Software Sector ETF (IGV) fell by 1.5%. VanEck Vectors Semiconductor ETF (SMH) fell by 1.4%.

SPDR S&P Metals & Mining ETF (XME) fell by 2.7%. Energy Select SPDR ETF (XLE) fell 0.7%, and the Financial Select SPDR ETF (XLF) 1.5%. Select Healthcare Sector SPDR Fund (XLV) gave up 1.2%.

Reflecting the more speculative stocks of history, the ARK Innovation ETF (ARKK) fell 2.5%, and the ARK Genomics ETF (ARKG) retreated by 1.6%. TSLA stock is a major holding in the Ark Invest ETF.


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PI Stock

Impinj shares fell 2.5% to 89.66 on Tuesday. Shares of the tracking chip maker are finding support at the 21-day and 10-week lines. PI stock is working on a new consolidation that should be a suitable base until Friday’s close with a 99.10 buy point. Investors could use 93.46, just above short-term highs, as an early entry, which is still close to the 10-week line.

The line of relative strength is right at highs, a bullish sign for PI stock as it outperforms the S&P 500.

In Stock

Semiconductor shares fell 2.4 percent to 68.48 after rising 1.8 percent on Monday. Shares of the EV-focused chipmaker closed slightly below its 21-day and 10-week lines.

The RS line for Onsemi stock is right around the highs.

After a late-August breakout from a failed long base, ON stock may have a new, shallow base late next week. Investors could use 73.03 as an aggressive entry that would also move back above the top of the previous consolidation.

NBIX shares

Shares of Neurocrine were down 0.7% at 107.09, finding support again at the 21-day moving average. NBIX stock has a flat base with 109.36 buy point, acc MarketSmith analysis. The flat base is just above a previous consolidation, making this a base on base formation. Investors could use a move above Monday’s high of 108.71 as a slightly lower entry. The RS line for NBIX stocks is at a new high.

SQM Stock

Shares of SQM fell 2.4% to 104.66, right on the 21-day line. Shares in the Chilean lithium and fertilizer giant struggled to pull out of the chaos cup-with-handle base earlier this month but never closed above 113.80 point of purchase. The good news is that the 50-day line is starting to catch up.

The RS line for SQM stock is near highs.

Tesla stock

Tesla shares rose to 313.33, slightly extending gains and moving above a very aggressive buy point of 309.22. But shares faded as much as 0.1 percent to 308.73. Shares of TSLA are near a 314.74 buy point from a brief consolidation, within a much larger consolidation that could be a suitable base later this week.

The RS line recently rallied just below the early April highs.

Buying TSLA stock or any stock in the current market environment would be extremely aggressive.

CEO Elon Musk tweeted Tuesday about Optimus, the humanoid Tesla Bot he may show off at the company’s AI Day on Sept. 30. Most experts say a useful, general-purpose humanoid robot is decades away. He also hinted at an improved Smart Summon or autopark feature that has had issues over the years.

However, Tesla’s sales in China have fallen short of expectations. Domestic sales are still set to hit a record in September as Shanghai capacity expanded again. But Tesla vehicle insurance registrations fell in the last week, a time when they usually increase strongly.

Tesla’s wait times in China have fallen sharply over the past few weeks, with the EV giant resorting to a large insurance subsidy to boost sales at the end of the quarter. This could herald real price cuts later this year.


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Stock market analysis

Well, it’s a stock market correction. The S&P 500 and Dow Jones on Tuesday broke through last Friday’s lows before paring losses somewhat.

The good news for Tuesday is that stocks didn’t move higher on big Fed-related news. This is in contrast to Fed chief Powell’s speech from Jackson Hole on August 26 or the CPI inflation report on September 14.

It’s no coincidence that the stock market is struggling with skyrocketing government bond yields.

The bull case of the summer revolved around the Fed. First, the Fed was expected to slow rate hikes soon, then begin cutting rates in 2023. After that, there was still hope that the Fed would taper off rate hikes and hold off until the end of the year.

But now the Fed is on track to raise rates aggressively through the end of the year, possibly more in 2023. That means a lot more pain for the economy.

The current environment of low growth and high inflation is not easy for companies. ford, FedEx (FDX) and General Electric (GE) are among the warnings in the past week.

Tuesday’s sell-off in Ford shares, following last week’s FDX and GE, showed investors were not disappointed by the sizable gains. Expect many more warnings over the next few weeks.

Given the weakness of the past few weeks, it is possible that the market will bounce back on Wednesday after the Fed meeting and Fed Chair Powell’s call. Note that the market often reverses course after a day or two of reaction to a Fed meeting.

While there is no clarity on when the Fed might begin to slow and stop its tightening, it is hard to see markets making significant progress. It’s not hard to see the major indexes testing or breaking their June lows.


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What should we do now

The market correction is once again in effect as the Fed will once again raise interest rates sharply with no end in sight. Companies are issuing major warnings amid tough macroeconomic conditions that are likely to worsen.

Investors should have little or no exposure and not make new purchases. Wait until there is a confirmed uptrend, which will likely involve the major indices retracing their 50-day moving averages. Even in this scenario, other technical headwinds, as well as the Fed and the economic environment, should keep investors cautious.

For now, investors should work on their watch lists, focusing on relative strength stocks like NBIX, On Semi and Tesla. Remember, today’s relative winners may start to unravel if the correction intensifies.

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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