Dow Jones futures were little changed Thursday morning, along with S&P 500 futures and Nasdaq futures. The stock market rally suffered serious losses Wednesday, with hawkish Federal Reserve comments sinking techs and lifting Treasury yields for a second straight session.
Arista Networks, Nvidia and Tesla stock were notable losers on Wednesday, but with different implications for their respective charts.
Apple and Fortinet fell modestly, rebounding from some key support. Apple stock now has a more convincing handle, while FTNT stock has a brand-new handle.
Finally, Extra Space Storage broke out from a proper base, as property REITs are quietly doing well.
ANET stock, Nvidia and Tesla are on IBD Leaderboard. Fortinet stock is on IBD Long-Term Leaders. Nvidia, Tesla, Arista Networks and EXR stock are on the IBD 50.
HP Inc. shot up 15% after Warren Buffett's Berkshire Hathaway disclosed it had purchased $4.2 billion of the PC and printer giant, an 11% stake.
Fed Meeting Minutes
At 2 p.m. ET, the central bank released Fed minutes from the March policy meeting. Participants agreed on reducing the balance sheet, starting as early as May. There was a general agreement to cut the Fed's asset stockpile by $95 billion per month as bonds mature. That includes $60 billion in Treasuries and $35 billion in mortgage-backed securities. The Fed could phase in those caps over three months.
"Many" Fed officials signaled support for a 50-basis point hike at one or more upcoming meetings. Several favored a half-point move in March, but went along with a quarter-point Fed rate hike due to Russia's Ukraine invasion, according to the minutes.
That comes a day after Fed Gov. Lael Brainard said she supports a "rapid" balance sheet reduction to combat inflation. The comments by a previously dovish policymaker, on top of expectations of multiple 50-basis point Fed rate hikes at upcoming meetings, sent Treasury yields soaring and techs tumbling.
Stocks kept falling Wednesday, with bond yields rising, hitting session lows after the Fed meeting minutes release.
Dow Jones Futures Today
Dow Jones futures fell 0.1% vs. fair value. S&P 500 futures edged higher and Nasdaq 100 futures climbed 0.15%.
The 10-year Treasury yield was flat at 2.62% after falling modestly overnight. The two-year yield is falling, as the yield curve widens out following a brief inversion.
Crude oil prices rose more than 2% early Thursday.
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 Rally
The stock market rally retreated again on Wednesday, with volatile moves after the Fed meeting minutes were released.
The Dow Jones Industrial Average dipped 0.4% in Wednesday's stock market trading. The S&P 500 index fell 1%. The Nasdaq composite retreated 2.2%. The small-cap Russell 2000 lost 1.4%.
The 10-year Treasury yield rose 5 basis points to 2.62%, a three-year high. The two-year Treasury yield dipped 2 basis points to 2.48%.
U.S. crude oil prices plunged 5.6% to $96.23 a barrel.
U.S. crude inventories rose more than expected last week. The International Energy Agency said members will release 120 million barrels from strategic reserves. The U.S. will contribute 60 million barrels, as part of President Joe Biden's plan to release 180 million barrels over six months. So the real IEA news is that other IEA members will release 60 million barrels.
A slew of Big Oil and shale executives testified on Capitol Hill as Democratic lawmakers accuse energy companies of profit gouging.
ETFs
Among the best ETFs, the Innovator IBD 50 ETF sank 2.9%, while the Innovator IBD Breakout Opportunities ETF was off 0.9%. The iShares Expanded Tech-Software Sector ETF skidded 3%. The VanEck Vectors Semiconductor ETF retreated 2.1%. NVDA stock is a top SMH holding.
Reflecting more-speculative story stocks, ARK Innovation ETF skidded 4.6% and ARK Genomics ETF gave up 2.3%. Tesla stock remains the No. 1 holding across Ark Invest's ETFs.
SPDR S&P Metals & Mining ETF fell 0.7% and the Global X U.S. Infrastructure Development ETF sank 1.4%. U.S. Global Jets ETF descended 3.35%. SPDR S&P Homebuilders ETF lost 2.3. The Energy Select SPDR ETF edged up 0.6%, despite plunging crude prices. The Financial Select SPDR ETF retreated 0.7%. The Health Care Select Sector SPDR Fund rallied 1.5%.
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Apple Stock
Apple stock fell 1.85% to 171.83, but rebounded from its 21-day exponential moving average. Wednesday's intraday drop offered a bit more of a shakeout in the tech titan's handle in the double-bottom base. The proper buy point is 179.71. It's possible Apple stock will form a three-weeks-tight after Friday's close, though that wouldn't offer a different entry.
The relative strength line for AAPL stock is right at highs.
FTNT Stock
FTNT stock sank 2.9% to 332.07 on Wednesday, but found support its 21-day line. The cybersecurity leader now has a handle on a wide-and loose base, giving it a 353.08 buy point. But with a P-E ratio of 86, Fortinet stock may struggle as Treasury yields race higher.
EXR Stock
Extra Space Storage stock climbed 3.4% to 212.37, clearing a 211.15 cup-with-handle buy point. Volume was below average but picked up near the close.
Self-storage peer Life Storage is moving up the right side of a cup base, but doesn't have a handle in play. LSI stock does have an RS line at a new high.
ANET Stock
The major indexes and leading stocks will often rise on an escalator and come down on an elevator. ANET stock is a good example of that. Shares raced up after March 14. Arista stock reclaimed its 50-day line on March 17 and then decisively cleared a trendline the following day, offering an early entry. Shares continued to rise up the right side of a cup base, hitting 143.57 intraday before reversing for a slim decline.
But on Wednesday, ANET stock tumbled 6.4% to 132.01, wiping out most of the gain from the trendline entry.
Could Arista stock find support here? Sure, but shares could also tumble below their 50-day line and beyond.
Nvidia Stock
Nvidia stock tumbled 5.9% to 244.07, knifing below its 50-day and 200-day lines intraday, though it closed just above the latter. The chip giant fully round-tripped a move above the 50-day line starting March 17. That March 17 move and a big gain on March 24 offered early entries. But NVDA stock soon lost momentum, as the chip sector came under heavy selling. On Tuesday, Nvidia stock skidded 5.2% to close just below its 21-day line.
Tesla Stock
Tesla stock sank 4.2% to 1,045.76. After surging since March 14 with only a couple of momentary pauses, TSLA stock finally could be working on a noticeable handle for its deep cup base. Arguably, Tesla ideally would drop to the 1,000 level or just below, undercutting the 21-day line to truly shake out some weak holders.
The official buy point is 1,208.10, according to MarketSmith analysis. But a handle would offer a lower entry. Tesla stock this week topped out right around a trendline entry, giving further weight to that area as a key level.
Shares rose 1% before the open.
Of course, just because a stock might be forming a handle doesn't mean the handle will form, and that the stock will break out successfully. If the market rally and highly valued growth stocks continue to falter, Tesla could retrace much or all of its recent gains, like Arista Networks and Nvidia stock.
Tesla Shanghai has been closed since March 28 as China's financial hub is under a strict lockdown amid soaring Covid cases. The factory will likely remain closed through at least Thursday and it's unclear when it might reopen, with coronavirus cases hitting new highs nationwide and in Shanghai.
That will affect Tesla's Q2 production and deliveries, at least slightly. That could provide the edge for China's BYD to surpass Tesla sales this quarter, as opposed to later in the year.
On the upside, Tesla Austin is expected to begin Model Y deliveries tonight, with Elon Musk on hand for yet another event at the site. But, as with Tesla Berlin, production and deliveries from the Texas plant will be slow to start.
Industry production woes continue to give Tesla tremendous pricing power. The EV giant on Thursday raised the U.S. prices of the Model 3 Long Range by $1,500 and Model 3 Performance by $1,000. Those variants now start at $55,990 and $62,990, respectively.
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Market Rally Analysis
Even as the market rally was surging higher in late March, busting through some resistance levels, it was unclear if that was the start of a long-lasting uptrend or just a "bear market rally." That's still unclear, but the stock market rally is showing some serious strain, with Fed balance sheet cuts and rate hikes front and center.
The Dow Jones, S&P 500 and Nasdaq all fell through their 21-day moving averages. The S&P 500 also undercut its 200-day line. The Dow Jones and Nasdaq found support around their 50-day lines.
The S&P MidCap 400 and small-cap Russell 2000 fell through their 50-day lines Wednesday after tumbling below their 21-day averages on Tuesday.
Perhaps this is just a market rally test, and the major indexes will rebound quickly or after some sideways action. But the selling could continue, especially in growth stocks.
Meanwhile, there are not a lot of stocks setting up right now. Some leaders are pulling back to major averages, but many are breaking sharply lower.
On the upside, fertilizer stocks are still running, but are greatly extended. Some energy and defense stocks such as Exxon Mobil and Lockheed Martin are consolidating bullishly after recent gains, but could use some more time to finish carving proper bases.
Medical stocks have been performing well, though few are near buy points right now. Eli Lilly and UnitedHealth are now clearly out of buy zones, while Edwards Lifesciences and a few others are working on the right side of bases.
Some property REITs are near handle buy points, such as EXR stock. But rising rates are a headwind for yield-focused REITs, while investors might ditch these defensive names if the market rally regains momentum.
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What To Do Now
Investors should be taking a more defensive approach. The market rally is looking weaker, with some leading stocks coming under strain. Investors should be cutting losses and taking at least potential profits in faltering leaders.
If you have some fertilizer, medical or other stocks that are working, you can choose to hold or lock in some partial gains.
But there isn't really a good reason to be adding exposure right now, given the overall market weakness and lack of setups.
That could all change in a hurry, so you want to be ready. A new crop of setups could appear in a few days, so keep working on your watchlists and stay engaged with the market.
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