Dow Jones futures were little changed overnight, along with S&P 500 futures and Nasdaq futures. The stock market rally collapsed on Tuesday on a hotter-than-expected inflation report, with major indexes breaking below their 50-day moving averages and erasing all or nearly all of their recent gains.
The Consumer Price Index for August it was much worse than expected. Consumer prices rose 0.1 percent, compared to views for a 0.1 percent decline, with food and rent prices boosting spending despite falling gasoline prices. The core CPI, which excludes food and energy, rose 0.6%, twice as much as expected. Core inflation cooled somewhat again to 8.3%, but Wall Street had expected 8%. Core inflation rose more than forecast to 6.3%.
That led one Wall Street firm to predict the Federal Reserve would raise interest rates by a full percentage point at the Fed’s September 20-21 meeting. That would be the most since the early 1980s, when then-Fed chief Paul Volcker waged an all-out war on inflation.
Megacapsules An apple (AAPL) and Tesla (TSLA), which recently issued buy signals, fell sharply on Tuesday, back below key levels. Nvidia (NVDA) and a Facebook parent Meta platforms (META), nobody’s idea of the current market leaders, fell to the lowest levels since 2022.
DVN stock included IBD ranking. PSTG shares included SwingTrader and it was on tuesday IBD Stock of the Day. Shares of Tesla and Devon Energy are in the market IBD 50. Devon and ENPH shares are at IBD Big Cap 20.
Dow Jones futures today
Dow Jones futures rose 0.1 percent to fair value, along with S&P 500 futures. Nasdaq 100 futures were unchanged.
At 8:30 a.m. ET, the Labor Department will release the producer price index for August.
Stock market rallies
The stock market rally suffered its worst loss of 2022, with major indexes closing near session lows on a hot inflation report and Fed rate hike concerns.
Another factor? The United States is considering options for wide-ranging sanctions against China to prevent any invasion of Taiwan, Reuters reported on Tuesday. The European Union is facing pressure to do the same. This would raise the risks of a massive economic disengagement of China from the West.
The Dow Jones Industrial Average fell 3.9% on Tuesday Exchange Trading. The S&P 500 fell 4.3%. The Nasdaq Composite was down 5.2%. The small-cap Russell 2000 lost 3.9%.
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Shares of Nvidia and META tumbled more than 9%, both hitting their lowest levels since 2022.
U.S. crude oil prices fell 0.5 percent to $87.31 a barrel.
The yield on the 10-year Treasury note rose 6 basis points to 3.42%. The benchmark yield hit 3.45% intraday, just below the 11-year peak of 3.48% set on June 14. Short-term yields rose much more.
Avg the best ETFsInnovator IBD 50 ETF (FFTY) fell 2.9%, while the Innovator IBD Breakout Opportunities ETF (BOOTH) lost 2.35%. iShares Expanded Tech-Software Sector ETF (IGV) sank by 4.7%. VanEck Vectors Semiconductor ETF (SMH) fell by nearly 6%. NVDA stock is a major holding of SMH.
SPDR S&P Metals & Mining ETF (XME) gave up 3.7%. SPDR S&P Homebuilders ETF (XHB) plunged 5.9%. Energy Select SPDR ETF (XLE) fell 2.5%, and the Financial Select SPDR ETF (XLF) lost 3.75%. Select Healthcare Sector SPDR Fund (XLV) fell by 3.3%.
Stocks are showing strength
Shares of PSTG fell 3.8% to 29.64 on Tuesday, but closed above their 21-day line. Pure Storage stock runs on a cup base with handle with a 31.62 buy point. Investors could use a move above Monday’s high of 30.88 as a slightly lower entry.
Nio shares rose 0.9% to 21.95, touching its 200-day line intraday after a sharp 13.5% jump on Monday. Shares of the China EV startup have jumped 28% over the past five sessions, four on heavy volume. Analysts are increasingly bullish on Nio’s lineup. Nio begins deliveries of the ET5 sedan, its third new EV this year, on September 30. Nio stock has a low base of 24.53 point of purchasebut investors could use a decisive move above the 200-day line as an early entry.
Shares of DVN fell 3% to 69.07, retreating after breaking a trend line on Monday. The buy point for a mug with a handle is 75.37. Investors can now use Monday’s high of 71.57 as an early entry. A longer break would allow the 50-day moving average to catch up somewhat.
Shares of WOLF fell 2.5% to 113.98 on Tuesday after sinking to 111.26 shortly after opening. Evercore ISI pitched the chip maker with a bang, saying it’s a great way to play in the EV space. Investors could treat the recent action as a vehicle for a massive consolidation, with a buy point at 123.35. A move above Monday’s high could suggest an early entry, but Wolfspeed shares are extended, well ahead of some of their moving averages.
Shares of ENPH fell 1.1% to 305.50 after testing the 21-day line. Investors can buy Enphase shares now outside the 21-day line, although market conditions are raising risks. A longer break in ENPH stock would allow the rapidly rising 50-day line to make up a bit.
Apple shares fell 5.9%, falling back below their 50-day and 200-day lines on heavy volume, giving up gains from the previous two sessions. AAPL shares had broken out of a downtrend on Monday, suggesting an early entry, but that’s no longer on the table. Shares of the tech titan Dow Jones are trading at a 176.25 buy point from that handle.
Apple iPhone 14 pre-orders it seems to run as strong or stronger than last year’s iPhone 13. Actual sales of the iPhone 14 begin on Friday.
Tesla shares fell 4% to 292.13, back just below the 200-day line but holding its 21-day and comfortably above the 50-day. Volume was thin but higher than the five-day rally.
TSLA stock likely has a short base within a much larger consolidation, with a buy point at 314.74. A move above Monday’s high of 305.49 could suggest an early entry.
Tesla’s head of investor relations, Martin Vieja, told a conference call on Tuesday that supply chain constraints and costs are easing for electric cars, which should lead to lower prices. Viecha said Tesla will eventually introduce a lower-cost EV model, but did not elaborate on when that might happen. Tesla recently introduced a lower-end Model Y in Europe at a much lower price.
Market Rally Analysis
The recently revived stock market rally took a nosedive at CPI inflation on Tuesday. The major indexes and the Russell 2000 fell below their 50-day moving averages. The Dow Jones broke last week’s lows, while the S&P 500 nearly did. The Nasdaq erased most of the gains of the previous four sessions.
Leading stocks, many of which have made strong gains in recent days, also suffered on Tuesday. Losers beat gainers after the steady market breadth in recent days.
Apple’s stock saw a damaging performance on Tuesday. Tesla also retreated following some gains on low volume, but its chart is looking a little better.
While shares of Pure Storage and Nio still look good, chances are they will falter if the market comes under more pressure.
The stock market has rallied over the past few days largely on expectations of a tame inflation report. That, in turn, would encourage the Fed to start raising rates less aggressively.
But after the hot inflation report, Nomura Securities predicted that Fed policymakers would raise rates by 100 basis points on September 21.
Markets are fully pricing in at least 75 basis points for a third straight Fed meeting next week. But there is now about a one-in-three chance of 100 basis points, up from zero before the CPI data. Markets are betting on a higher rate at the end of the year.
The 10-year Treasury yield has continued its hot run over the past few weeks.
A more aggressive Fed, higher Treasury yields and a stronger dollar do not bode well for stocks. This is especially so when the markets are betting against it.
The question now is where the market goes from here. Will the major indexes break last week’s lows and head for June bottoms? The market is likely to be limited as Wall Street waits for actual signs that the Fed will slow rate hikes.
What should we do now
Investors may have been looking to take profits heading into Tuesday’s CPI inflation report, given the small-volume advance meant good news. At this point, you may want to lock in remaining profits in recent purchases or cut losses.
It’s a good idea to keep the exposure light. The hot inflation data undermined the short-term bull scenario for more modest rate hikes from the Fed, with the direction of the market now uncertain.
At some point, whether it’s next week, next month, or next year, the market will be in a clear uptrend. Then the real money will be made.
So work on your watchlists, focusing on relative strength and signs that large institutions are acquiring stocks.
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