Dow Jones futures edged higher Wednesday morning, while S&P 500 futures were flat and Nasdaq futures fell slightly. The Fed meeting decision is front and center for investors today.
The stock market rally attempt suffered another blow Tuesday as the Nasdaq tumbled back below its 50-day line, though the indexes closed well off intraday lows.
The final growth leaders are up against the wall. Tesla (TSLA) broke below recent lows intraday. Microsoft stock and Google parent Alphabet (GOOGL) showed real strain, with GOOGL stock undercutting its 50-day line intraday. Nvidia stock and Advanced Micro Devices (AMD) did manage to hold key support after skidding lower in the past few weeks.
Apple (AAPL), though still comfortably above all its moving averages, reversed lower for a second straight session.
Meanwhile, software and other growth names that had bounced back in the rally attempt — such as Adobe (ADBE), Fortinet (FTNT) and Datadog (DDOG) ¯ are tumbling lower again. Growth stocks hit new lows intraday.
There are pockets of strength in the market but, as with Apple stock, some of those areas lost ground Tuesday.
Bottom line: The stock market rally attempt is looking sickly heading into a major news event. Investors should be taking a defensive approach.
Nvidia (NVDA), Microsoft (MSFT), Tesla, AMD and Google stock are on IBD Leaderboard. Microsoft, Adobe, Google and Fortinet stock are on IBD Long-Term Leaders. Microsoft, Google, Nvidia and AMD stock are on the IBD 50. Tesla stock was Tuesday’s IBD Stock Of The Day.
Fed Meeting
The final Fed meeting of the year concludes Wednesday, with the policy announcement due at 2 p.m. ET. Fed chief Jerome Powell and several of his colleagues have signaled their support or willingness to discuss a faster bond taper. That’s after finally agreeing to begin scaling back asset purchases at the November Fed meeting. A faster taper could set the stage for Fed rate hikes before mid-2022.
The omicron Covid variant is a wild card. While the infectious coronavirus strain may curb economic growth in the short run, there’s a growing consensus that it’s not a game changer. With consumer inflation at a 39-year high of 6.8%, wholesale inflation at a record 9.6% and initial jobless claims at the lowest since 1969, the Fed doesn’t want to fall any further behind the curve.
Investors have likely priced in a faster bond taper. But a big question is whether or not policymakers will pencil in two Fed rate hikes in 2022, or three. Will policymakers also signal support for ultimately reducing the central bank’s massive balance sheet?
Fed chief Jerome Powell’s press conference at 2:30 p.m. ET will likely be crucial as well.
Dow Jones Futures Today
Dow Jones futures were slightly above fair value. S&P 500 futures edged higher and Nasdaq 100 futures dipped 0.2%.
The 10-year Treasury yield was steady at 1.44%. U.S. crude oil futures fell more than 1%, back below $70 a barrel.
China retail sales rose 3.9% in November vs. a year earlier, less than October’s 4.9% and estimates for 4.6%. Industrial production grew 3.8%, ticking up from 3.5% in October and views for 3.6%.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
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Coronavirus News
The World Health Organization said that the new omicron Covid-19 variant is spreading faster than any previous coronavirus strain. The WHO said omicron is probably present in every country of the world. It cautioned against assuming that omicron will be mild. The Centers for Disease Control and Prevention said omicron accounted for nearly 3% of U.S. cases last week.
California on Monday said it would reinstate an indoor mask mandate for everyone, regardless of vaccination status. The policy is expected to last at least a month, getting through the holiday season.
Pfizer reported fresh data showing that its Covid antiviral pill reduces serious illness and hospitalization in 89% of Covid patients.
Coronavirus cases worldwide reached 271.85 million. Covid-19 deaths topped 5.34 million.
Coronavirus cases in the U.S. have hit 51.13 million, with deaths above 821,000.
Stock Market Rally
The stock market rally attempt came under more strain, especially for growth. A late-day push failed to eliminate losses.
The Dow Jones Industrial Average dipped 0.3% in Tuesday’s stock market trading. The S&P 500 index gave up 0.75%. The Nasdaq composite sank 1.1%. The small-cap Russell 2000 retreated 0.8%
The 10-year Treasury yield rose 2 basis points to 1.44% after tumbling 7 basis points on Monday. Crude oil prices sank 0.8% to $70.53 a barrel after undercutting $70 intraday.
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ETFs
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.4%. The Innovator IBD Breakout Opportunities ETF (BOUT) also sank 1.4%. The iShares Expanded Tech-Software Sector ETF (IGV) skidded 3.3%. MSFT stock and Adobe are major IGV holdings. The VanEck Vectors Semiconductor ETF (SMH) dipped 0.6%. Nvidia stock and AMD are key SMH components.
SPDR S&P Metals & Mining ETF (XME) edged down 0.2% and Global X U.S. Infrastructure Development ETF (PAVE) gave up 0.9%. The U.S. Global Jets ETF (JETS) fell 0.8%. SPDR S&P Homebuilders ETF (XHB) shed 1.3%. The Energy Select SPDR ETF (XLE) dipped 0.4% and the Financial Select SPDR ETF (XLF) advanced 0.8%. The Health Care Select Sector SPDR Fund ETF (XLV) slipped 0.4%.
Reflecting stocks with more speculative stories, the ARK Innovation ETF (ARKK) and the ARK Genomics ETF (ARKG) both gave up 1.1%. Tesla stock remains the largest holding across ARK Invest’s ETFs.
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Microsoft Stock
MSFT stock fell 3.3% to 328.34, but found support near its 50-day moving average. Microsoft stock remains extended from a 305.94 flat-base buy point. The relative strength line remains near record highs, reflecting MSFT stock’s strong performance vs. the S&P 500 index in 2021 and for many years. The RS line is the blue line in the charts provided. At this point even recent investors can choose to hold Microsoft stock, but market conditions are a factor to consider.
Google Stock
Google stock sank 1.3% to 2,878.14, but came off intraday lows and closed just below its 50-day line. Last week, GOOGL stock reclaimed its 50-day, broke a trendline and moved back above its 2,925.17 flat-base entry, according to MarketSmith. Shares of Alphabet could be working on a new flat base with a 3,019.43 buy point.
Nvdia Stock
NVDA stock edged up 0.6% to 283.37, rebounding from a drop to its 50-day line. Shares are down 18% from the Nov. 22 peak of 346.47, following a metaverse-fueled spike. That fast run-up from a prior base triggered the eight-week hold rule, but that period is nearly over. A significant break of the 50-day/10-week line would be a strong signal for recent investors to take partial profits in Nvidia stock.
A strong bounce from the 50-day/10-week line could offer a buying opportunity, but NVDA stock’s steep retreat — including Monday’s 6.75% dive — and the current market’s fragile state would make such a move highly risky.
AMD Stock
AMD stock popped 1.35% to 135.60 after undercutting its 50-day line intraday. Shares have given up substantial gains from the late-November peak. A 50-day line bounce could offer an entry, but the market hasn’t been kind to new buys recently.
Tesla Stock
Tesla undercut recent lows, sliding to 930 intraday before rebounding to close down 0.8% to 958.81. It’s still considerably below its 50-day line after tumbling 5% on Monday.
Tesla shot up 38% from the 900.50 cup-base buy point to its 1,243,49 peak. The bulk of that gain is gone. Recent investors should have been taking at least partial profits.
For those who bought lower, say around 700, they still have a hefty profit but have lost half of their peak gains. Keep in mind that Tesla stock has a history of correcting 40%, 50% or more — even in the midst of its incredible run over the past two years.
TSLA stock looks better than a lot of EV rivals or growth stocks generally, but that’s not entirely a positive for the EV giant.
In terms of potential buys, reclaiming the 50-day line wouldn’t be enough. Perhaps a trendline, currently around 1,150, would offer an aggressive entry, which would almost certainly involve some strength in growth names and the broader market. Tesla stock could soon have a new base.
Shares fell more than 1% early Wednesday.
Apple Stock
Apple stock fell 0.8% to 174.33, after slipping 2.1% on Monday. That’s still extended from a 153.26 cup-with-handle buy point. Still, investors may want to lock in gains given the general state of the market, with even giants like Microsoft and Google sliding.
Market Rally Analysis
Despite paring Tuesday’s intraday losses somewhat, the stock market rally attempt is not looking good. The Nasdaq composite tumbled below its 50-day moving average. The Dow Jones is just above its 21-day and 50-day lines. The S&P 500 is just below its 21-day line, pointing toward its 50-day. The Russell 2000, which did not bounce much from Tuesday’s lows, is just above its Dec. 1 low.
The rally attempt is still in force as long as one of the three big-cap indexes holds above recent lows, but the Nasdaq undercutting those levels would be a near-fatal blow.
Back in early October, a market rally attempt suffered a series of downside reversals, though the actual declines were relatively modest. But the big difference then was that a slew of leading stocks were breaking out or flashing other buy signals.
That is not the case right now.
First, richly valued software and growth stocks sold off, starting with Upstart (UPST) and continuing with CrowdStrike (CRWD), Affirm (AFRM) and others.
As the market rally attempt got underway last week, several software stocks bounced back, including MongoDB (MDB), DDOG, FTNT and Adobe stock. But those are falling below their 50-day lines again.
With Tesla stock breaking key support and even the likes of Microsoft, Google and Nvidia straining to hang on, the few survivors such as Apple stock look more like the last to go rather than the vanguard of a bold new advance.
The advance/decline line continues to deteriorate, reflecting an ongoing bear market for many if not most stocks in recent months. New lows crushed new highs Tuesday.
The FFTY ETF fell to its lowest levels since July.
Housing-related stocks still look strong, though many builders pulled back Tuesday. REITs, trucking firms and many medical stocks are at least worth watching, while steel stocks had a strong Tuesday. But the overall market conditions don’t instill much confidence.
The Fed meeting announcement could be a catalyst for big gains, perhaps even a follow-through day. But the Fed decision, especially if policymakers are surprisingly hawkish, could also trigger heavy losses.
When It’s Time To Sell Your Favorite Stock
What To Do Now
If you made new buys during the rally attempt, those purchases are likely underwater, outside of homebuilders and a few pockets of strength. The market rally itself is faltering.
If you haven’t already, you should probably be peeling back those new buys.
If the Nasdaq undercuts recent lows, signaling a new leg for the market correction, you may want to reduce further exposure or even go entirely to cash. Yes, it’s possible that the market rally will revive just as you sell. (This is one reason to take partial profits when individual stocks or the market are looking extended.) But it’s just as likely that the market will deteriorate further.
When a confirmed market uptrend takes hold, you’ll have plenty of buying opportunities. Make sure you have the financial and mental capital to take advantage when the odds are in your favor.
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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