Dow Jones futures rose slightly early Wednesday, along with S&P 500 futures and Nasdaq futures, with the Fed meeting announcement in focus. The major indexes retreated Tuesday as the Federal Reserve began its two-day policy meeting.
XTesla stock briefly flashed an aggressive buy signal, despite more signs of weaker-than-expected Tesla (TSLA) demand in China. That comes amid a big Ford Motor (F) warning on supply costs, as well as unfinished vehicles. Ford stock plunged 12%, with General Motors (GM) down 5.6% despite an EV supply deal with Hertz (HTZ).
In addition to Tesla, chipmakers On Semiconductor (ON) and Impinj (PI) are showing strength along with Neurocrine Biosciences (NBIX) and lithium giant SQM (SQM).
Apple (AAPL) rose for a second straight session. Apple stock remains below key levels. Meanwhile, fellow megacap techs stocks Microsoft (MSFT) and Google parent Alphabet (GOOGL) are at 52-week lows.
NBIX stock is on IBD Leaderboard. TSLA stock and On Semiconductor, also known as Onsemi, are on the IBD 50. ON stock is on the IBD Big Cap 20. Impinj is Tuesday's IBD Stock Of The Day.
Fed Meeting
Policymakers seem locked in on a third straight Fed rate hike of 75 basis points, with an announcement due at 2 p.m. ET. Markets do see a small chance of a huge full-point hike.
The key is what the Fed sees now. Quarterly projections will indicate where the central bank sees the fed funds rate at the end of 2023, and under what economic conditions. Fed chief Jerome Powell, in his Aug. 26 Jackson Hole speech, made it clear that the Fed is willing to risk recession in order to bring inflation under control.
Powell will speak at 2:30 p.m. ET, perhaps giving some hints about near-term Fed rate hikes. Currently, markets are betting on a fourth 75-basis-point move in November, followed by 50 basis points in December. That would push the year-end fed funds rate to 4.25%-4.5% from 2.25%-2.5% currently. Before the August consumer price index on Sept. 14, markets were looking for 3.75%-4% at the end of 2022.
Meanwhile, Russia's Vladimir Putin announced a partial mobilization to address manpower shortages in his Ukraine invasion. Conscripts will have their terms automatically extended, with reservists also called up, among other measures, including new nuclear threats.
Northrop Grumman (NOC) rose 2%, signaling a move out of a consolidation. Lockheed Martin (LMT) and other defense giants also rose.
Dow Jones Futures Today
Dow Jones futures rose 0.35% vs. fair value. S&P 500 futures advanced 0.3% and Nasdaq 100 futures climbed 0.2%.
The 10-year Treasury yield fell 4 basis points to 3.53%.
U.S. crude oil futures rose 2%. U.S. natural gas prices leapt more than 4%. Putin's partial military mobilization may be pushing energy futures higher.
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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Stock Market Tuesday
The stock market fell Tuesday heading into the Fed meeting announcement. A late afternoon bounce faded into the close.
The Dow Jones Industrial Average fell 1% in Tuesday's stock market trading. The S&P 500 index lost 1.1%. The Nasdaq composite declined 0.95%. The small-cap Russell 2000 lost 1.4%.
Apple stock, a member of the Dow Jones, S&P 500 and Nasdaq composite, rose 1.6% to 156.90. AAPL stock hit resistance at its 21-day and remains below its 50-day and 200-day lines after last week's big downside reversal. But a decisive move above the 50-day and 200-day lines could offer a fresh early entry.
October U.S. crude fell 1.5% to $84.45 a barrel. November crude oil futures, now the near-month contract, slid 1.7% to $83.94.
The 10-year Treasury yield jumped 8 basis points to 3.57%, yet another 11-year high.
ETFs
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) retreated 1.3%. The iShares Expanded Tech-Software Sector ETF (IGV) slid 1.5%. The VanEck Vectors Semiconductor ETF (SMH) fell 1.4%.
SPDR S&P Metals & Mining ETF (XME) slumped 2.7%. The Energy Select SPDR ETF (XLE) dipped 0.7% and the Financial Select SPDR ETF (XLF) 1.5%. The Health Care Select Sector SPDR Fund (XLV) gave up 1.2%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) declined 2.5% and ARK Genomics ETF (ARKG) pulled back 1.6%. TSLA stock is a major holding across Ark Invest's ETFs.
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PI Stock
Impinj stock fell 2.5% to 89.66 on Tuesday. Shares of the maker of tracking chips are finding support at the 21-day and 10-week lines. PI stock is working on a new consolidation that should be a proper base by Friday's close with a 99.10 buy point. Investors could use 93.46, just above short-term highs, as an early entry that's still close to the 10-week line.
The relative strength line is right at highs, a bullish sign for PI stock as it outperforms the S&P 500 index.
ON Stock
On Semiconductor stock fell 2.4% to 68.48 after rising 1.8% on Monday. Shares of the EV-focused chipmaker closed just below their 21-day and 10-week lines.
The RS line for Onsemi stock is right around highs.
After a late August breakout from a long base fizzled, ON stock could have a new, shallow base at the end of next week. Investors could use 73.03 as an aggressive entry, which would also be back above the top of the prior consolidation.
NBIX Stock
Neurocrine stock dipped 0.7% to 107.09, once again finding support at the 21-day moving average. NBIX stock has a flat base with a 109.36 buy point, according to MarketSmith analysis. The flat base is just above a prior consolidation, making this a base-on-base formation. Investors could use a move above Monday's high of 108.71 as a slightly lower entry. The RS line for NBIX stock is at a new high.
SQM Stock
SQM stock declined 2.4% to 104.66, right at its 21-day line. Shares of the Chilean lithium-and-fertilizer giant tried to break out of a messy cup-with-handle base earlier this month, but never closed above the 113.80 buy point. The good news is that the 50-day line is starting to catch up.
The RS line for SQM stock is near highs.
Tesla Stock
Tesla stock rose as high as 313.33, slightly extending gains and moving above a very aggressive 309.22 buy point. But shares faded to finish off 0.1% to 308.73. TSLA stock is close to a 314.74 buy point from a short consolidation, within a much-larger consolidation that could be a proper base at the end of this week.
The RS line has been surging lately to just below the early April highs.
Buying TSLA stock, or any stock, in the current market environment would be extremely aggressive.
CEO Elon Musk on Tuesday tweeted about Optimus, the humanoid Tesla Bot that he may show off at the company's AI Day on Sept. 30. Most experts say a useful general purpose humanoid robot is decades away. He also hinted an improved Smart Summon or autopark feature, which has had problems over the years.
However, Tesla China sales are lagging expectations. Local sales should still hit a record in September, as Shanghai capacity has expanded yet again. But Tesla vehicle insurance registrations fell in the latest week, a time when they usually are ramping up hard.
Tesla China wait times have fallen sharply in past few weeks, with the EV giant resorting to a big insurance subsidy to fuel end-of-quarter sales. That could presage actual price cuts later this year.
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Stock Market Analysis
Well, it's a stock market correction. The S&P 500 and Dow Jones on Tuesday undercut last Friday's lows, before paring losses somewhat.
The good news about Tuesday is that stocks weren't rallying into big Fed-related news. That's in contrast to the Aug. 26 Jackson Hole speech by Fed chief Powell, or the Sept. 14 CPI inflation report.
It's no coincidence that the stock market is struggling with Treasury yields screaming higher.
The summer bull case revolved around the Fed. First, the Fed was expected to slow rate hikes soon, then start cutting rates in 2023. Then, there was still hope that the Fed would downshift rate hikes and pause by year-end.
But now the Fed is on track to raise rates aggressively through year-end, with more possible in 2023. That means a lot more pain for the economy.
The current low-growth, high-inflation environment hasn't exactly been easy for companies. Ford, FedEx (FDX) and General Electric (GE) are among those warning in the past week.
The Ford stock sell-off Tuesday, after FDX and GE last week, shows that investors haven't priced in significant earnings disappoints. Expect a lot more warnings in the next few weeks.
Given the weakness in the past several weeks, it's possible that the market will bounce Wednesday after the Fed meeting and Fed chief Powell's talk. Keep in mind that the market often reverses course in a day-two reaction to a Fed meeting.
Until there is clarity on when the Fed might start slowing and halting its tightening, it's hard to see markets making a meaningful advance. It's not hard to see the major indexes testing or undercutting their June lows.
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What To Do Now
The market correction is back in force with the Fed about to hike rates sharply again, with no end in sight. Companies are announcing big warnings amid tough macroeconomic conditions that are likely to get worse.
Investors should have little or no exposure and not make new buys. Wait until there's a confirmed uptrend, which would probably involve the major indexes reclaiming their 50-day moving averages. Even in that scenario, other technical hurdles, as well as the Fed and economic backdrop, should keep investors cautious.
For now, investors should work on their watchlists, focusing on relative strength such as NBIX stock, On Semi and Tesla. Remember, today's relative winners may start to break down if the correction intensifies.
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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