Dow Jones futures tilted higher overnight, along with S&P 500 futures and Nasdaq futures. The stock market rally opened solidly higher as the consumer price index raised hopes that inflation is peaking, but the major indexes reversed lower as a top Fed official signaled aggressive rate hikes and other measures are ahead.
Crude oil prices jumped as Shanghai eased Covid lockdowns in some areas, though the city remains largely shut down.
Dow Jones Futures Today
Dow Jones futures rose less than 0.1% vs. fair value. S&P 500 futures and Nasdaq 100 futures climbed 0.1%.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
JPMorgan Chase (JPM) and Delta Air Lines (DAL) report early Wednesday, kicking off bank and airline results as earnings season gets underway. JPM stock and DAL stock are well off highs, along with most of their peers.
Tesla (TSLA) and Apple stock rebounded Tuesday morning, breaking back above their 21-day and 50-day lines, respectively, within handles. But Apple (AAPL) and Tesla stock slashed gains as the overall market fizzled.
Shell (SHEL) and Devon Energy (DVN) flashed buy signals as a jump in crude oil prices fueled energy stocks. Defense giant Raytheon Technologies (RTX) flirted with an early entry.
Tesla stock is on IBD Leaderboard and IBD 50. RTX stock is on SwingTrader. DVN stock is on the IBD Big Cap 20.
The video embedded in this article analyzed the market action and reviewed Shell stock, Devon Energy and Raytheon.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Rally
The stock market rally tried to bounce Tuesday, but not for long.
Before the open, the Labor Department reported consumer inflation jumped to 8.5% in March, its hottest rate since 1981. But core inflation, though hitting a long-term high of 6.5%, came in slightly below estimates. Along with falling gasoline prices and tougher year-over-year comparisons, there is a growing hope that March marked the inflation peak. That could ease pressure on consumers and mean the Federal Reserve doesn’t have to raise rates quite as much.
But any Fed shift would be down the road. Fed Gov. Lael Brainard said after Tuesday’s CPI inflation report that the Fed will move “expeditiously” to raise rates and reiterated that a decision to reduce the balance sheet could come “as soon as May” with actual cuts starting in June.
The Dow Jones Industrial Average closed down 0.3% in Tuesday’s stock market trading. The S&P 500 index and Nasdaq composite also gave up 0.3%. The small-cap Russell 2000 climbed 0.3%.
U.S. crude oil prices leapt 6.7% to $100.60 a barrel.
The 10-year Treasury yield fell 5.5 basis points to 2.725%, though off intraday lows.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) climbed 0.6%, while the Innovator IBD Breakout Opportunities ETF (BOUT) climbed 0.8%. The iShares Expanded Tech-Software Sector ETF (IGV) sank 0.7%. The VanEck Vectors Semiconductor ETF (SMH) retreated 0.5%.
SPDR S&P Metals & Mining ETF (XME) popped 2.5% and the Global X U.S. Infrastructure Development ETF (PAVE) edged up 0.4%. U.S. Global Jets ETF (JETS) rose 0.8%. SPDR S&P Homebuilders ETF (XHB) dipped 0.3%. The Energy Select SPDR ETF (XLE) popped 1.7%, with DVN stock an XLE holding. The Financial Select SPDR ETF (XLF) lost 1.1%. The Health Care Select Sector SPDR Fund (XLV) gave up 1%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) closed flat and ARK Genomics ETF (ARKG) climbed 0.9%. Tesla stock remains the No. 1 holding across Ark Invest’s ETFs.
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Shell stock rose 1.2% to 55.99, but faded from a new high of 56.73. Shares of the integrated energy giant have been testing a 56.23 flat-base buy point. The relative strength line has been hitting highs for several days, reflecting SHEL stock’s outperformance vs. the S&P 500 index.
DVN stock climbed 3.7% to 62.26, rebounding from the 21-day moving average and near the 10-week line. Intraday, shares hit 63.42, just clearing a short consolidation after a big run. Investors could buy Devon stock now from the moving averages or after topping Tuesday’s intraday peak.
RTX stock rose to 103.92 intraday, just below a 104.44 flat-base buy point and above an early entry of 103.97, just above the March 25 high. But Raytheon stock faded with the market, closing up 0.5% to 102.60. Shares are just 4.1% above their 10-week line. The RS line for RTX stock has been rising sharply again, right around highs.
The flat base is part of a base-on-base pattern. Raytheon stock and other defense names broke out decisively from longer consolidations at the start of Russia’s Ukraine invasion. They’ve been consolidating for weeks.
Market Rally Analysis
The stock market rally got a strong bounce Tuesday morning following the CPI inflation report, with the Dow Jones and S&P 500 briefly reclaiming their 50-day moving averages. But the major indexes all reversed to close modestly lower, with the Nasdaq staging an outside reversal day after Monday’s sharp losses.
Even at intraday highs, the major indexes weren’t breaking sharp downtrends since late March.
The small-cap Russell 2000 edged up, but came well off highs after hitting resistance at its 50-day line.
Until the Nasdaq regains its 50-day line and the S&P 500 recaptures its 200-day line, the short-term trend will remain negative. Even reclaiming those levels likely would still leave the market uptrend “under pressure.”
But in the here and now, the Nasdaq has given up more than half of its recent gains from its March 14 low.
The energy and commodity sector remain the leading areas. Defense, medicals and some pockets of retail are doing all right. Tech and growth is heavily damaged.
Apple stock and Tesla are among the best-looking growth names, and they don’t look actionable right now. TSLA stock is trying to buck the trend even with Tesla Shanghai shut down since March 28. Tesla earnings for Q1 are due on April 20, but investors will likely focus on short-term prospects and longer-term initiatives. Apple earnings come on April 28.
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What To Do Now
Aside from the commodity, defense and medical sectors, there is little reason to be playing this market aside from long-term winning positions. Don’t get sucked into brief rallies, such as Tuesday morning’s pop.
If and when the market has a sustained uptrend, there will plenty of opportunities. So don’t try to fight the market when it’s in a downtrend.
Work on your watchlists. Look for stocks setting up among leading sectors, while also building broader lists that are holding up reasonably well.
Read The Big Picture every day to stay in sync with the 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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The post Dow Jones Futures: Market Rally On Inflation Report Fizzles As Fed Sends This Hawkish Signal; What To Do Now appeared first on Investor’s Business Daily.