Dow Jones futures fell overnight, along with S&P 500 and Nasdaq futures. The stock market fell sharply on Wednesday after the Federal Reserve hiked aggressively again and signaled a higher peak, or “terminal” rate.
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This is a stock market correction. Investors should be cautious, but looking for prominent names.
Celsius Holdings (CELH), Shockwave Medical (SWAV), WE HAD (WE HAD), GlobalFoundries (GFS) and Enphase Energy (ENPH) are showing strong relative strength in a weak market.
Shares of CELH and Shockwave Medical are on the IBD Leaderboard Watchlist. Shares of Celsius Holdings, Enphase and SWAV are in the IBD 50. Shares of ENPH are in the IBD Big Cap 20. Celsius was the IBD Stock of the Day on Wednesday, while Shockwave be Monday’s
The video embedded in this article discussed Wednesday’s roller coaster market action and looked at shares of Celsius, ATI and GFS.
Fed meeting
As expected, the Fed raised its key interest rate by 75 basis points for the third consecutive meeting, increasing the target range to 3%-3.25%.
Fed policymakers now see the fed funds rate at 4.4% by the end of 2022, up from 3.4% after the June meeting. Here’s what the markets are pricing in: 75 basis points more at the November meeting, followed by 50 basis points in December, for a closing range of 4.25%-4.5%.
The central bank also signaled a modest tightening in 2023, forecasting a funds rate of 4.6% by the end of next year versus a forecast of 3.8% in June. This is also not out of line with what market watchers expected for the terminal rate. Policymakers expect the rate to drop to 3.9% in 2024.
Fed chief Jerome Powell reiterated that the central bank will not stop in the face of inflation. He noted that a “soft landing” will be difficult, but did not say what the odds of a recession are. “At some point,” the Fed will slow the pace of rate hikes, Powell said, but did not say when that might happen. He added that the Fed’s policy will have to remain “restrictive” for some time.
Fed chief Powell said the labor market remains “unbalanced,” though he added that commodity prices appear to have peaked.
Dow Jones futures today
Dow Jones futures fell 0.5% to fair value. S&P 500 futures fell 0.8%. Nasdaq 100 futures were down 1%.
The 10-year Treasury yield rose 5 basis points 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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Stock market Wednesday
The stock market rose modestly on the Fed meeting decision, then went on a roller coaster ride that ended at session lows.
The Dow Jones Industrial Average fell 1.7% in Wednesday’s trading. The S&P 500 also fell 1.7%. The Nasdaq composite fell 1.8%. The small-cap Russell 2000 fell 1.5%
The price of US crude fell 1.2% to $82.94 a barrel.
The 10-year Treasury yield fell 6 basis points to 3.51% after briefly reaching 3.62% following the Fed’s rate hike. The two-year Treasury yield rose above 4%, closing at around 4.04%, but well off session highs.
ETFs
Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) fell 1.8%. The iShares Extended Technology Software Sector ETF ( IGV ) shed 1.4%. The VanEck Vectors Semiconductor ETF (SMH) lost 0.8%.
The SPDR S&P Metals & Mining ETF ( XME ) fell 2.1% while the US Global Jets ETF ( JETS ) fell 4% on a bad day for travel. SPDR S&P Homebuilders ETF ( XHB ) fell 1.1%. The Energy Select SPDR ETF (XLE) retreated 1.5% and the Financial Select SPDR ETF (XLF) retreated 2.1%. The Select Health Sector SPDR Fund (XLV) decreased by 1.7%.
Reflecting more speculative stocks, the ARK Innovation ETF (ARKK) lost 2.65% and the ARK Genomics ETF (ARKG) lost 2.7%.
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CELH stock
Shares of Celsius fell 3.9% to 98.23 on Wednesday. The stock has pulled back to find support at its 10-week moving average after a 209% rally from early May to late August. In another couple of weeks, CELH stock could make a new base, with a buy point at 118.29. Investors could use 108.47 as an early entry for the energy drink maker.
CELH stock’s relative strength line is at all-time highs.
Stock shock wave
Shares of SWAV sank 1.85% to 284.69 on Wednesday, reversing losses from 300.96 intraday. Shockwave stock continues to find support around its 21-day line.
Stock ATI
Shares of ATI lost a little more than 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 have pulled back to the top of an earlier base and just above their 10-week line. A 10-week line bounce could provide an early entry, with a suitable base another week away.
Although ATI’s stock has been retired, their RS line is at its best.
GFS stock
Shares of GlobalFoundries fell 0.9% to 56.29. That’s just above its 50-day line and the new 200-day line, while GFS shares are slightly below its 10-week line. The 2021 chip foundry IPO has a very deep double-bottom base with a handle, offering a buy point of 66.06. By the end of this week, the handle of GFS stock will be long enough to be its own base, with the same entry of 66.06.
Stock ENPH
Enphase shares fell 15 cents to 304.56, continuing to find support from its 21-day moving average. ENPH stock is still extending from its 50-day line, but less so. The RS line for Enphase stock has been hitting new highs for weeks.
Stock market analysis
As usual, the stock market soared after the Fed’s decision to raise rates, the new rate projections and Powell’s comments, which briefly recovered before finally closing with heavy losses. In the end, the major indexes had ugly bearish reversal sessions.
While markets weren’t blindsided on Wednesday, the Fed’s overall tone was likely a little more hawkish than expected. But ultimately, the Federal Reserve is raising rates aggressively despite growing recession risks, in order to put inflation back into its coffers.
Markets usually have a reaction from the Fed on the second day. But even if the stock rebounds on Thursday, that wouldn’t make sense.
All the major indexes broke off Wednesday’s recent intraday lows and are losing sight of their 50-day moving averages. June lows are not that far off.
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what to do now
Ultimately, it’s not the news that matters, but the market’s reaction to the news. And the stock market did not react well to the Fed meeting decision on Wednesday.
Could the market get a short-term bounce, or even a decent rally for several weeks? For sure. But investors will want to see a lot more evidence.
Leading stocks like Celsius, Shockwave and Enphase may show buy signals early in a market recovery attempt. But investors must balance the need to get into hot stocks quickly with making sure there is a broad uptrend. If the market heads towards the June lows or beyond, even the relative leaders will likely break.
If a real rally in the stock market is achieved, there will be many opportunities. The key is to be prepared.
Work on these watchlists. Focus on stocks with strong relative strength and those names holding or recovering key moving averages.
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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