Dow Jones futures rose slightly early Wednesday, along with S&P 500 and Nasdaq futures, with the Fed meeting announcement in focus. Major indexes retreated on Tuesday as the Federal Reserve began its two-day policy meeting.
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Tesla stock briefly showed an aggressive buy signal, despite more signs of weaker than expected Tesla (TSLA) demand in China. This comes in the middle of a big one Ford Motor (F) Notice of supply charges, as well as unfinished vehicles. Ford shares fell 12%, with General Motors ( GM ) fell 5.6% despite an electric vehicle supply deal Hertz (HTZ).
In addition to Tesla, chip makers About Semiconductor (WHERE) i Imp (PI) are showing strength along with Neurocrine Biosciences (NBIX) and lithium giant square meters (M²).
apple ( AAPL ) rose for the second consecutive session. Apple shares remain below key levels. Meanwhile, other megacap tech stocks Microsoft (MSFT) and parent of Google alphabet (GOOGL) are at 52-week lows.
NBIX shares are listed in the IBD classification. Shares of TSLA and On Semiconductor, aka Onsemi, are in the IBD 50. ON shares are in the IBD Big Cap 20. Impinj is Tuesday’s IBD Stock of the Day.
The video embedded in this article discussed Tuesday’s market action and analyzed Neurocrine Biosciences, Wolfspeed (WOLF) and PI stock.
Fed meeting
Policymakers appear locked in on a third consecutive Fed rate hike of 75 basis points, with an announcement expected at 2:00 PM ET on Wednesday. Markets see a small chance of a big full-point move.
The key is what the Fed sees now. Quarterly projections will indicate where the central bank sees the fed funds rate at the end of 2023 and under what economic conditions. Fed Chairman Jerome Powell, in his Jackson Hole speech on August 26, made it clear that the Fed is willing to risk recession to control inflation.
Powell will speak at 2:30 pm ET, perhaps giving some advice on 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. That would raise the one-year funds rate to 4.25%-4.5% from the current 2.25%-2.5%. Ahead of the September 14 August CPI, markets were looking for 3.75%-4% by the end of 2022.
Dow Jones futures today
Dow Jones futures rose 0.1% to fair value. S&P 500 and Nasdaq 100 futures rose 0.1%.
The 10-year Treasury yield fell 1 basis point to 3.56%.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next normal stock market session.
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Tuesday Stock Market
The stock market fell on Tuesday ahead of the announcement of the Fed meeting. An afternoon bounce faded in the end.
The Dow Jones Industrial Average fell 1% in Tuesday’s 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, rose 1.6% to 156.90. AAPL stock hit resistance at its 21-day and remains below its 50- and 200-day lines after last week’s big bearish reversal. But a decisive move above the 50- and 200-day lines could provide another early entry.
U.S. crude for October fell 1.5% to $84.45 a barrel. November crude oil futures, now the contract for nearly a month, fell 1.7% to $83.94.
The 10-year Treasury yield rose 8 basis points to 3.57%, another 11-year high.
ETFs
Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) retreated 1.3%. The iShares Extended Technology Software Sector ETF ( IGV ) fell 1.5%. The VanEck Vectors Semiconductor ETF ( SMH ) fell 1.4%.
SPDR S&P Metals & Mining ETF (XME) fell 2.7%. The Energy Select SPDR ETF (XLE) fell 0.7% and the Financial Select SPDR ETF (XLF) fell 1.5%. The Select Health Sector SPDR Fund (XLV) yielded 1.2%.
Reflecting more speculative stocks, the ARK Innovation ETF ( ARKK ) declined 2.5% and the ARK Genomics ETF ( ARKG ) fell 1.6%. TSLA stock is a major holding in Ark Invest’s ETFs.
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PI stock
Impinj shares fell 2.5% to 89.66 on Tuesday. Shares of the tracking chipmaker 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 for Friday’s close with a 99.10 buy point. Investors could use 93.46, just above near-term highs, as an early entry that is still near the 10-week line.
The relative strength line is right at the highs, a bullish sign for PI stock as it outperforms the S&P 500 index.
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Semiconductor shares fell 2.4% to 68.48 after rising 1.8% on Monday. Shares of the EV-focused chipmaker closed just below its 21-day and 10-week lines.
The RS line for Onsemi stock is around highs.
After a late August break from a long base, ON shares could make a new shallow base late next week. Investors could use 73.03 as an aggressive entry, which would also be back above the top of the previous consolidation.
NBIX stock
Neurocrine shares fell 0.7% to 107.09, finding support at the 21-day moving average again. NBIX shares have a flat base with a buy point of 109.36, according to MarketSmith analysis. The flat base sits 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 stock is at a new high.
Stock of square meters
Shares of SQM declined 2.4% to 104.66, right at its 21-day line. Shares of the Chilean lithium and fertilizer giant tried to break out of a messy cup-with-handle base earlier this month, but never closed above the 113.80 buy point. 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 breaking a very aggressive buy point at 309.22. But shares faded to finish up 0.1% at 308.73. Shares of TSLA are near a 314.74 buy point of a short consolidation, within a much larger consolidation that could be a suitable base later this week.
The RS line has recently rallied to just below the early April highs.
Buying TSLA stock, or any stock for that matter, 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 September 30. Most experts say a general-purpose humanoid robot is decades away. He also hinted at an improved Smart Summon or auto-parking feature, which has struggled over the years.
However, Tesla’s sales in China are lagging expectations. Local sales should still hit a record in September as capacity in Shanghai has been expanded again. But Tesla’s vehicle insurance registrations fell in the last week, a time when they usually rise sharply.
Waiting times at Tesla China have fallen sharply in recent weeks, and the electric vehicle giant turned to a big insurance subsidy to fuel end-of-quarter sales. This could foreshadow 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 traded off last Friday’s lows on Tuesday, before paring losses a bit.
The good news on Tuesday is that stocks weren’t rallying on big Fed-related news. This contrasts with Fed Chairman Powell’s Aug. 26 Jackson Hole speech or the Sept. 14 CPI inflation report.
It’s no coincidence that the stock market is struggling with Treasury yields screaming.
The case for the summer bull revolved around the Fed. First, the Fed was expected to slow rate hikes soon, and then begin cutting rates in 2023. At the time, there was still hope that the Fed would taper rate hikes and stop at the end of ‘year.
But now the Fed is on track to raise rates aggressively through the end of the year, most likely in 2023. That means much more pain for the economy.
The current environment of low growth and high inflation has not exactly been easy for businesses. Ford, FedEx (FDX) and General Electric (GE) are among those who warned last week.
The sell-off in Ford shares on Tuesday, following FDX and GE last week, shows that investors have not been disappointed by the significant gains. Expect many more announcements in the coming weeks.
Given the weakness of the past few weeks, the market may bounce back on Wednesday after the Fed meeting and Fed Chair Powell’s talk. Note that the market often reverses course in a second-day reaction to a Fed meeting.
Until there is clarity on when the Fed might begin to slow and stop its tightening, it is hard to see markets making any meaningful progress. It’s not hard to see the major indexes retesting or breaking their June lows.
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what to do now
The market correction is once again in effect with the Fed poised to raise rates sharply again, with no end in sight. Companies are issuing stark 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 would likely involve the major indices retracing their 50-day moving averages. Even in this scenario, other technical obstacles, as well as the Fed and the economic context, should keep investors cautious.
For now, investors should work on their watchlists, focusing on relative strength such as NBIX, On Semi and Tesla stocks. Remember that today’s relative winners may start to break if the correction intensifies.
Read 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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