Dow Jones futures rose slightly Wednesday morning, along with S&P 500 futures and Nasdaq futures, with the Federal Reserve meeting in focus.
The stock market rally fell slightly Tuesday with Treasury yields hitting long-term highs, but the S&P 500 and Nasdaq avoided closing below a critical level. More leading stocks are starting to crack, including ELF Beauty. The uptrend is under increasing pressure.
Investors should be extremely cautious about new buys, and perhaps paring exposure further, but still working on watchlists.
Tesla, Meta Platforms, Adobe, Uber Technologies, Caterpillar, Booking Holdings, Akamai, Costco Wholesale, General Electric, Baker Hughes, Manhattan Associates, Nextracker and Argenx.
Meta, Tesla, Uber, Baker Hughes and Booking Holdings are on IBD Leaderboard, with Argenx and ELF Beauty on the Leaderboard watchlist. Adobe, Booking, Tesla, Argenx, Manhattan Associates and Caterpillar are on the IBD 50. Tesla and Caterpillar are on the IBD Big Cap 20.
The video embedded in the article discussed the market rally's weak action Tuesday and analyzed ELF Beauty, Duolingo and Uber.
Fed Meeting
Policymakers will wrap up their two-day Fed meeting on Wednesday afternoon, with an announcement at 2 p.m. ET. Markets overwhelmingly expect no action. But Fed policymakers will give new rate-hike projections while staff will issue economic forecasts. Those rate-hike projections and Fed chief Jerome Powell's 2:30 p.m. ET press conference will likely swing stocks and bonds.
Powell and fellow policymakers will likely want to keep their options open for a rate hike and also push back talk of a rate cut. But investors are expecting continued Fed patience going forward. The Fed is expected to keep unloading assets acquired during the pandemic, which will act to push up Treasury yields. Rising market rates are tightening credit in recent weeks even with the fed funds rate steady.
The odds of a Nov. 1 rate hike have fallen to below 30%, as recent data point to cooling underlying trends for inflation and economic growth.
Dow Jones Futures Today
Dow Jones futures rose 0.3% vs. fair value. S&P 500 futures advanced 0.3% and Nasdaq 100 futures climbed 0.3%.
The 10-year Treasury yield dipped to 4.34%.
Crude oil futures fell slightly.
U.K. inflation unexpectedly fell in August, making a Bank of England rate hike Thursday less of a sure thing.
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 continued its weak trend, with all the major indexes losing a little more ground vs. their 50-day lines. But they did come off session lows as bulls stepped in at critical levels.
The Dow Jones Industrial Average fell 0.3% in Tuesday's stock market trading.
The S&P 500 index and Nasdaq composite dipped 0.2%. Both fell Tuesday morning below the intraday low of their Aug. 29 follow-through day, but they managed to close above it. A close below the FTD low would be a highly bearish signal that the market rally would ultimately fail.
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The small-cap Russell 2000, already below its 200-day line, fell 0.4% to its lowest level since early July. The Invesco S&P 500 Equal Weight ETF edged down 0.2%, closing below its 200-day line for the first time since early June. All of that reflects weak market breadth. The Nasdaq advance/decline line continues to hit long-term lows. New lows are dominating new highs in recent days.
Leadership continues to narrow. ELF stock, which has been on an amazing run, tumbled 8.55% on Tuesday, down 18.4% in an eight-session losing streak.
U.S. crude oil prices fell 0.3% to $91.20 a barrel, after hitting $93.74 in morning trade.
The 10-year Treasury yield rose 5 basis points to nearly 4.37%, the highest since Oct. 31, 2007. The two-year yield climbed 5 basis points to 5.11%, a 17-year high.
ETFs
Among growth ETFs, the Innovator IBD 50 ETF fell 1%. The iShares Expanded Tech-Software Sector ETF edged down 0.1%, with ADBE stock a huge holding. The VanEck Vectors Semiconductor ETF declined 0.9%.
Reflecting more-speculative story stocks, ARK Innovation ETF gave up 1.2%% and ARK Genomics ETF dipped 0.3%. Tesla stock is the No. 1 holding across Ark Invest's ETF.
SPDR S&P Metals & Mining ETF dropped 0.7%. U.S. Global Jets ETF and SPDR S&P Homebuilders ETF edged up less than 0.1%. The Energy Select SPDR ETF fell 0.9%, with BKR stock a holding. The Health Care Select Sector SPDR Fund nudged up 0.1%.
The Industrial Select Sector SPDR Fund slipped 0.4%. GE and CAT stock are big XLI components. The Financial Select SPDR ETF dipped 0.1%.
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Stocks To Watch
Tesla stock edged up 0.5% to 266.50. Shares are in the process of forging a handle after the Sept. 11 gap above the 50-day line.
ADBE stock climbed 1.7% to 541.69, finding support at the 50-day line after skidding last week following earnings.
META stock rose 0.8% to 305.07, back above the 50-day line. Shares are working on a possible handle to their cup base.
UBER stock advanced 2.3% to 47.59, finding support near the 50-day within a cup-with-handle base.
CAT stock edged down 0.45% to 279.67, working within a flat base with the 10-week line catching up.
BKNG stock fell 1.4% to 3,112.75, testing the 10-week line. Shares are working on a flat base.
AKAM stock rose 1% to 106.62, clearing the bulk of a flat base, offering an early entry Tuesday with the relative strength line at a new high.
GE stock dipped 0.3% to 116.21, continuing to trade within a 7%-deep flat base, according to MarketSmith analysis.
COST stock tilted higher 0.3% to 564.35, pausing not far below a flat base next to a longer consolidation.
BKR stock slipped 0.8% to 36.18, down to its 10-week line. A strong bounce could offer a new buying opportunity.
MANH stock is trading sideways within a cup-with-handle, finding support at the 21-day line. Shares edged up 0.3% to 202.53.
NXT stock climbed 0.2% to 41.60. The solar-tracking IPO has a cup-with-handle base. Nextracker stock has messy action on a daily chart, but some tight weekly closes.
ARGX stock rose 0.2% to 524.13, within a cup-with-handle base.
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What To Do Now
The stock market rally is just hanging on. Recent buys haven't been working while more leading stocks and sectors are breaking.
It's just not a time to be buying stocks. Investors likely have been cutting back on recent buys.
You can still be holding onto some long-term holdings, though investors have to decide when to take partial or full profits on strong 2023 performers.
If the market rally revives, perhaps after the Fed meeting, a number of stocks would soon look interesting. But add exposure incrementally in that scenario, with the major indexes facing a series of resistance levels.
Keep working on your watchlists, focusing on stocks holding key support and showing strong relative strength.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on X/Twitter at @IBD_ECarson for stock market updates and more.
