Dow Jones Futures: Is the Market Rally Over? Indices break support as Fed fears intensify

Dow Jones futures rose modestly overnight, along with S&P 500 and Nasdaq futures. The stock market rally came under more pressure on Tuesday, with major indexes below their 50-day moving averages and major stocks struggling.

A surprise jump in job offers raised expectations of big rate hikes from the Fed, triggering Tuesday’s market pullback. Crude oil and natural gas prices fell, causing energy stocks to fall, as well as the withdrawal of other raw materials. Antero Resources ( AR ), Steel Dynamics ( STLD ), and CF Industries ( CF ) fell below buy points or early entries. Hot chip names such as Photronics (PLAB) have sold off heavily.

Investors should seek to reduce exposure and reduce losses.

Enphase Energy (ENPH) is holding up well, but is testing a key level. Pinduoduo (PDD) is holding close to a buy point after Monday’s earnings gap, but it’s a bit lonely in terms of Chinese networks. Celsius (CELH) is finding support at its 21-day line.

Meanwhile, Apple ( AAPL ) dropped below its 200-day moving average. Tesla (TSLA), which had hit resistance around the 200-day line, is now heading towards its 50-day line.

After the close, CrowdStrike ( CRWD ) reported better-than-expected second-quarter earnings and revenue, and the cybersecurity company also guided slightly higher. Shares of CRWD were down in overnight trading. Shares fell 0.5% to 62.83 in the regular session on Tuesday, just above the 50-day line. CrowdStrike stock is well below its 200-day moving average.

Shares of CELH and Steel Dynamics are on the IBD Leaderboard. Shares of Tesla, CF Industries, Celsius and Enphase Energy are in the IBD 50. CF Industries and ENPH are in the IBD Big Cap 20. Enphase is Tuesday’s IBD Stock of the Day.

The video embedded in the article discussed Tuesday’s market action and analyzed shares of RA, Steel Dynamics and Pinduoduo.

Dow Jones futures today

Dow Jones futures rose 0.3% to fair value, while S&P 500 futures advanced 0.25% and Nasdaq futures rose 0.4%.

Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next normal stock market session.

Join IBD’s experts as they analyze actionable stocks in the stock market’s recovery on IBD Live

Stock Exchange meeting

The stock rally briefly tried to find its footing, but then broke through key support levels on strong economic data. Major indexes closed at session lows.

Job postings rose unexpectedly in July, the Labor Department reported Tuesday, following a large upward revision to June. This indicates a large unmet demand for labor. That will keep fears of spiraling wage prices high, even as gas prices fall and commodity prices retreat. On Friday, the Labor Department will release the employment report for August.

The Dow Jones Industrial Average fell 1% in Tuesday’s trading. The S&P 500 index and the Nasdaq composite lost 1.1%. The small-cap Russell 2000 gave up 1.4%.

US crude prices fell 5.5% to $91.64 a barrel, more than erasing Monday’s solid gain. An OPEC+ official told Russian state-owned TASS that the cartel and its allies are not considering a supply cut. Gasoline futures fell 6.4%. Natural gas prices slipped 3.2% as Europe fills winter storage ahead of schedule and signals measures to intervene in energy prices to limit price rises.

The 10-year Treasury yield was flat at 3.1%, retreating from intraday highs of 3.15%. The two-year Treasury yield rose 3 basis points to 3.46% amid increased expectations for a Fed rate hike. The yield curve continues to invert, a recession warning.

ETFs

Among the top ETFs, the Innovator IBD 50 ETF (FFTY) fell 3.7% as energy and commodity names pounded the FFTY. The iShares Extended Technology Software Sector ETF ( IGV ) was down 0.2%. The VanEck Vectors Semiconductor ETF (SMH) gave up 1.1%.

The SPDR S&P Metals & Mining ETF ( XME ) fell 4.3%, with STLD shares a major component. The Global X US Infrastructure Development ETF (PAVE) fell 2.2%. The Energy Select SPDR ETF ( XLE ) fell 3.4%. The Select Health Sector SPDR Fund ( XLV ) retreated 0.7%.

Reflecting more speculative stocks, the ARK Innovation ETF ( ARKK ) fell 0.5% and the ARK Genomics ETF ( ARKG ) fell 1.9%. Tesla stock remains a top holding in Ark Invest’s ETFs.

Top Five Chinese Stocks to Watch Now

Stocks to watch

Shares of ENPH rose 0.3% to 285.77, holding support at the 21-day line. Enphase shares have been trading relatively strongly in recent weeks after rocketing gains since late July to an Aug. 8 high of 308.88. ENPH stock would ideally forge a new base, although investors could use a move above Friday’s high as an early entry.

Shares of PDD rose 0.7% to 66.50. On Monday, shares rose 15% to 66.04 on Pinduoduo’s earnings. According to MarketSmith analysis, shares of PDD briefly breached the buy point of the fund’s daily cup-shaped base of 68.81. Last week, Pinduoduo shares surged 25%, boosted by an audit agreement between the United States and China that should end a threat of delisting for Chinese companies listed on the NYSE.

However, Pinduoduo stands out, with e-commerce rival Alibaba ( BABA ) struggling, along with more notable Chinese stocks.

CELH shares fell 0.5% to 104.43, their third straight decline. But shares of the energy drink maker found support at the 21-day line. Celsius shares are clearly below a 109.84 buy point with a huge base, so investors who bought or added shares at this point may want to at least trim those purchases. Still, CELH stock is holding up relatively well in the context of its big move since early May.

AAPL stock had been the only megacap stock to consistently trade above its 200-day line over the past month. But on Tuesday, the stock fell 1.5% to 158.91, below that key level, which had offered an early entry just a few weeks ago. Apple shares are expected to return to the 50-day line, which is already touching the 10-week moving average. While there is still a buy point at 176.25, the recent trend is no longer the Dow tech titan’s friend.

TSLA shares fell 2.5% to 277.70, their fourth straight loss since their 3-for-1 split, though all have seen anemic volume. As with AAPL stock, the electric vehicle giant is falling toward its 50-day line and testing its 10-week. Tesla shares are starting to lose sight of their 200-day line above them and some aggressive entries.

Tesla vs. BYD: Warren Buffet cuts stake in EV Giant

Analysis of market concentration

The stock market rally has struggled since the S&P 500 hit resistance at its 200-day moving average on Aug. 16, with the sell-off intensifying following a hawkish speech by Fed chief Jerome Powell last Friday .

On Tuesday, the major indexes fell below their 50-day moving averages. The small-cap Russell 2000 and S&P 400 MidCap are moving quickly toward this key level.

The odds of a third straight rate hike of 75 basis points in September actually fell on Tuesday, but to a still high 68.5%. But markets are slightly more confident of a half-point move in November and a quarter-point rate hike from the Fed in December, ending the year with a funds rate of 3.75%-4% vs. 2.25%-2.5% now.

Fed chief Powell and other policymakers say they will keep rates high for an extended period, hinting that a clear recession may be needed to cool labor markets and underlying inflationary pressures. And Fed rate hikes aside, tight labor markets are squeezing corporate profit margins.

Leading stocks are stumbling, with recent energy breakouts faltering or failing. Antero Resources skidded 8.1% on Tuesday, below an early entry of underhandling. Shares of Steel Dynamics, after holding strong after last Thursday’s breakout, sank 5.6% on Tuesday. Fertilizer leader CF Industries lost 6.5 percent after falling 4.2 percent on Monday to close a fraction below a buy point.

Could these stocks bounce back and regain buy points or create new entries quickly? Sure, but they could also break.

Shares in Apple and Tesla show that even the best megacap names are faltering, a bad sign for the major indexes.

Solar stocks have been winners. But even Enphase’s stock hasn’t moved in recent weeks. Separately, Celsius stocks are doing relatively well, but are still losing ground.

The recent uptrend is looking more and more like a bear market rally in its final legs. Perhaps the major indices will test or lower their June lows. They may be limited between mid-June lows and mid-August peaks. Or maybe the market rally will find its footing and soon move above the 200-day line and beyond.

But right now, the market is not performing well.

Time the Market with IBD’s ETF Market Strategy

what to do now

This is the time to reduce the overall exposure. Even leaving aside portfolio management, investors should cut losses or take small gains from recent new purchases that have fallen.

For stocks that are holding on, such as Celsius, and there are always a few, investors may still want to consider taking at least partial profits. If the market continues to weaken, the likelihood is high that even resilient stocks will eventually succumb.

Keep working on the watchlists. The upturn in the market could recover, with new buying opportunities from handles or runs. If you’re so inclined, you can also create watch lists of potential short films, just in case the market tries to bounce and then falter.

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.