Dow Jones futures tilted higher overnight, along with S&P 500 futures and Nasdaq futures. All eyes await the Federal Reserve meeting announcement and Fed chief Jerome Powell. Fed rate hike outlook signals will be key.

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The stock market rally closed modestly higher but after initially gapping up on a tame CPI inflation report. Promising moves by leading stocks generally fizzled or reversed lower.

Tesla (TSLA) plunged to fresh bear market lows on Tuesday as the sentiment turns decidedly bearish on the EV giant. TSLA stock has been selling off in heavy volume. CEO Elon Musk himself appeared to concede Tesla demand concerns on Wednesday.

Among Dow Jones megacap techs, Apple (AAPL) erased a strong early gain amid reports of a sweeping change to its App Store model. Microsoft (MSFT) closed higher but after hitting key resistance.

Airline stocks sold off hard as a JetBlue (JBLU) warning added to recent concerns about travel demand heading into 2023. United Airlines (UAL), which flirted with buy points in the past couple of weeks, plunged Wednesday.

Meanwhile, General Electric (GE), Goldman Sachs (GS) and Peabody Energy (BTU) all found support at key levels and are near possible buy points. Peabody was Tuesday’s IBD Stock Of The Day.

The video embedded in this article discussed Tuesday’s market action and analyzed Tesla stock, GE and Peabody Energy.

Fed Rate Hike, Outlook

The Federal Reserve will almost certainly hike rates 50 basis points at 2 p.m. ET, after four straight Fed rate hikes of 75 basis points. What investors want are signals about Fed rate policy in early 2023.

Following Tuesday’s CPI inflation report, markets are now slightly leaning toward a quarter-point rate hike on Feb. 1.

The November consumer price index came in lighter than expected, with a 0.1% monthly gain, or 0.2% excluding food and energy. The CPI inflation rate fell to 7.1%, the lowest in a year and down from October’s 7.7%. The core CPI inflation rate cooled to 6% from 6.3%.

The Fed will also release quarterly economic projections, along with policymakers’ rate hike projections. That might offer insight into where policymaker see the “terminal” or peak fed funds rate.

Fed chief Jerome Powell will speak at 2:30 p.m. ET. His comments about inflation and recession risks and peak Fed rates will be critical for stocks and Treasury yields.

Dow Jones Futures Today

Dow Jones futures advanced 0.1% vs. fair value. S&P 500 futures climbed 0.15% and Nasdaq 100 futures rose 0.2%.

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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Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live

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Stock Market Rally

The stock market rally started Tuesday off strong, with the major indexes all clearing short-term highs on the CPI inflation report. But gains faded significantly.

The Dow Jones Industrial Average closed up 0.3% in Tuesday’s stock market trading. The S&P 500 index climbed 0.7%. The Nasdaq composite climbed 1%. The small-cap Russell 2000 advanced 0.3%.

Apple stock rose as high as 149.97 intraday, but closed up just 0.7% to 145.47. That did just retake the 50-day line. Apple will open its iPhone and iPad devices to multiple app stores in Europe, Bloomberg reported, to satisfy European regulators. Apple has turned the App Store into a massive money-spinner over the past several years.

Microsoft stock climbed 1.75% to 256.92, closing above its Dec. 1 high. But shares were well off the morning high of 263.92. MSFT stock peaked right at the 200-day line, a key resistance area.

U.S. crude oil prices popped 3% to $75.39 a barrel.

The 10-year Treasury yield tumbled 11 basis points to 3.5%, though off intraday lows of 3.43%. The two-year Treasury yield, more closely tied to Fed policy, plunged 18 basis points to 4.22%.

ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) rose 0.8%, while the Innovator IBD Breakout Opportunities ETF (BOUT) climbed 0.9%. The iShares Expanded Tech-Software Sector ETF (IGV) rallied 1.6%, with MSFT stock a major component. The VanEck Vectors Semiconductor ETF (SMH) added 1.7%. Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) edged down 0.1% and ARK Genomics ETF (ARKG) rose 1.1%. Tesla stock is a major holding across Ark Invest’s ETFs, but especially ARKK.

SPDR S&P Metals & Mining ETF (XME) advanced 0.8% and the Global X U.S. Infrastructure Development ETF (PAVE) 0.9%. U.S. Global Jets ETF (JETS) descended 2.85%, with UAL stock and JetBlue both components. SPDR S&P Homebuilders ETF (XHB) gained 1.8%, with several builders and housing-related retailers showing strength. The Energy Select SPDR ETF (XLE) popped 1.9%. The Financial Select SPDR ETF (XLF) and Health Care Select Sector SPDR Fund (XLV) both edged up 0.3%.

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Stocks To Watch

GE stock dipped 0.4% to 82.88 after topping its 21-day moving average intraday. General Electric on Monday round-tripped a solid advance from a bottoming base with an 81.40 buy point. On a weekly chart, GE stock has found support at the 10-week moving average for the first time since the early November breakout. A strong bounce from these levels, perhaps topping Tuesday’s intraday high of 84.90, would offer a buying opportunity.

GE earnings, though uneven, have rebounded in 2022, with even-stronger growth seen next year.

GS stock also recently round-tripped a cup-base breakout and found support at the 10-week line, brushing below the 358.72 buy point. The investment bank is rebounding this week. On a weekly chart, Goldman stock is working on a 13-month cup-with-handle base with a 389.68 buy point, according to MarketSmith analysis.

On Tuesday, shares rose 1.5% to 368.89, fractionally above its 21-day moving average but off intraday highs of 378.56. A move above Tuesday’s high could offer an early entry into GS stock.

Peabody Energy Stock

BTU stock rose 2.2% to 28.47 on Tuesday, bouncing from its 50-day and 10-week lines but hitting resistance at the 21-day line. Peabody stock has a 32.99 handle buy point on a consolidation going back nearly eight months. But BTU stock, much like the general market, has a tendency of quick advances followed by more-gradual withdrawals ceding much of the prior gain. A move above Tuesday’s intraday high of 29.08 could offer an early entry from both the 50-day and 21-day lines as well as breaking the downtrend of the handle.

Tesla Stock

Tesla stock opened higher, but quickly gave back gains and then turned sharply lower for a second straight session. Shares blasted through their Nov. 21 bear market lows, closing down 4.1% to 160.95. Volume was the heaviest in over a year, with several other high-trade retreats in the past couple of weeks.

It’s possible that some big TSLA stock investors or mutual funds are selling shares as they break lower and as the year winds down.

More broadly, Tesla stock has lost roughly half its value just since late September. Sharp sell-offs have been followed by tepid, short bounces.

On Tuesday, data showed Tesla China vehicle registrations last week came in below forecasts. That adds to China demand concerns and comes amid widespread reports that Tesla will slow Shanghai plant production, possibly suspending output at year-end.

Elon Musk on Tuesday appeared to acknowledge that Tesla demand is an issue. “Tesla will be great long-term, but doesn’t control macroeconomic tides,” Musk tweeted.

While a weak global economy is likely a factor, Tesla also faces growing competition, especially in China.

Meanwhile, Elon Musk’s Twitter reign is weighing on Tesla stock. His attention appears focused on Twitter vs. the EV giant. Meanwhile, Musk’s increasingly partisan, trolling tweets have hurt his brand image, especially  with Democrats. The concern for TSLA stock investors is that Elon Musk’s negatives will turn off potential Tesla EV buyers.

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Market Rally Analysis

The stock market rally popped at Tuesday’s open on the tame CPI inflation report, but quickly gave up much of those gains.

All the major indexes topped their Dec. 1 intraday highs briefly before pulling back. The S&P 500 did close back above its 200-day moving average. The Nasdaq continued to bounce from its 50-day and 21-day lines.

The Russell 2000 opened above the 200-day, but faded well below that level and finished below its 21-day line.

If the major indexes, especially the S&P 500, could move above their Dec. 1 highs, it would be a bullish sign, but not necessarily definitive. The current market rally has had a number of big one-day gains, soon followed by pullbacks that erase that action. That’s made it hard to buy on strength.

Not surprisingly, a lot of stocks showed big bullish moves at Tuesday’s open, but tumbled back for small advances or outright losses. Megacaps are neutral at best, such as Microsoft stock, laggards such as Apple stock or outright losers like Tesla.

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What To Do Now

Tuesday’s market action shows why investors shouldn’t buy right at the open, especially when the major indexes gap up on news. It also shows why investors need to keep their emotions in check.

If the market rallies strongly on Wednesday’s Fed rate hike and Fed chief Powell’s comments, there will likely be some buying opportunities. But add exposure gradually, using early entries and pullbacks for slightly safer entries.

Until the market rally shifts from choppy action to sustained uptrend, it’s risky to ramp up exposure.

A lot of stocks from a variety of sectors are setting up. So you want to be prepared, working on your watchlists. Stay engaged so you can act as stocks clear buy points.

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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