Dow Jones futures fell Wednesday morning, along with S&P 500 futures and Nasdaq futures. Target plunged early Wednesday on a big earnings miss, a day after Walmart did the same. The 10-year Treasury yield is back around 3%.
The new stock market rally had strong gains Tuesday amid several bullish factors. Fed chief Jerome Powell said policymakers need to see "clear and convincing evidence" of cooling inflation before slowing the pace of Fed rate hikes, but he said a "softish landing" for the U.S. economy is plausible.
Broadcom flashed an aggressive entry Tuesday, while Eli Lilly remains actionable. On the downside, Dollar Tree pulled back modestly below its 50-day line as Walmart plunged 11% on weaker-than-expected Q1 earnings as inflation pressures hit the discount giant on several fronts. DLTR stock fell early Wednesday on Target's big miss.
Meanwhile, Elon Musk's Twitter saga continued, with the Tesla CEO saying the deal "cannot move forward" without more clarity on bot accounts, even calling on the Securities and Exchange Commission to step in. The social site said it's committed to the original terms. Tesla stock rebounded on Tuesday. TWTR stock rose 2.5% after plunging in recent days, falling far below the proposed $54.20 takeover price.
Key Earnings
Early Wednesday, Target and ZIM Integrated Shipping will report earnings.
Target earnings came in $2.19 a share, far below views for $3.07 a share. Sales rose 4% to $25.17 billion, slightly beating. The discount giant blamed shipping costs, higher markdowns and weaker sales in TVs and other big-ticket items.
Target stock crashed 24% early Wednesday to about 163, signaling at least a 52-week low. That's after falling 1.4% on Tuesday, in sympathy with Walmart stock. Target stock has been in a cup-with-handle base with a 254.97 buy point. WMT stock sank 2% after Tuesday's 11% tumble.
ZIM earnings shot up 177% to $14.19 a share, comfortably beating views. The ocean-going container shipping play also raised full-year EBITDA targets and announced a dividend of $2.85 a share. ZIM stock rose 6% early Wednesday to 69. Shares are working on a 79.05 buy point from a cup base. But shares possibly could have an early entry from near its 50-day line and short-term resistance on Wednesday. On Tuesday, ZIM reversed lower to fall 1.7%, as fellow container shipping play Danaos retreated despite crushing views late Monday.
AVGO stock and Eli Lilly are on IBD Leaderboard and SwingTrader. LLY stock is on the IBD 50. Broadcom was the IBD Stock Of The Day.
Fed Chief Powell
Fed chief Jerome Powell said he remains focused on bringing inflation down. He noted that financial conditions have tightened quite a bit already but said he wants to see "clear and convincing evidence" of slowing inflation pressures before reducing the pace of Fed rate hikes. He said it's not a time for "nuanced" readings of inflation. Powell said there may be some "pain" involved in bringing down inflation. But he expects labor markets to remain strong and says a "softish landing" is still possible. Last week, Powell said recession may be unavoidable.
Ultimately, Fed chief Powell largely reiterated prior statements and themes, and didn't signal a new shift or pace in monetary policy.
Dow Jones Futures Today
Dow Jones futures retreated 0.6% vs. fair value. S&P 500 futures fell 0.8% and Nasdaq 100 futures declined 1.2%. Futures significantly worsened following the big Target earnings miss.
The 10-year Treasury yield climbed 2 basis points to 2.99%, after briefly hitting the 3% level.
U.S. crude oil prices rose more than 2%.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Rally
The stock market rally started off strong Tuesday, pulling back a couple of times but then strengthening again, including on Fed chief Powell's comments.
There were several bullish market drivers Tuesday. Chinese stocks rallied on easing lockdowns and solid JD.com earnings results. U.S. retail sales were strong, with Home Depot results also positive, though the big Walmart earnings miss on inflation pressures tempered enthusiasm. United Airlines raised key revenue targets, signaling strong demand for the travel industry.
The Dow Jones Industrial Average rose 1.3% in Tuesday's stock market trading. The S&P 500 index popped 2%. The Nasdaq composite jumped 2.8%. The small-cap Russell 2000 leapt 3.1%
U.S. crude oil prices fell 1.6% to $112.40 a barrel. Gasoline futures also retreated.
The 10-year Treasury yield jumped 9 basis points to 2.97%, but didn't move much on Fed chief Powell.
ETFs
Among the best ETFs, the Innovator IBD 50 ETF climbed 2.45%, while the Innovator IBD Breakout Opportunities ETF fell 1 cent. The iShares Expanded Tech-Software Sector ETF rose 1.75%. The VanEck Vectors Semiconductor ETF jumped 4.8%, with AVGO stock a notable SMH holding.
SPDR S&P Metals & Mining ETF rebounded 4.25% and the Global X U.S. Infrastructure Development ETF added 2.7%. U.S. Global Jets ETF ascended 5.7%. SPDR S&P Homebuilders ETF climbed 2.7%. The Energy Select SPDR ETF advanced 1.2% and the Financial Select SPDR ETF picked up 2.7%. The Health Care Select Sector SPDR Fund rose 1.4%, with LLY stock a significant holding.
Reflecting more-speculative story stocks, ARK Innovation ETF popped 5% and ARK Genomics ETF 4.7%. Tesla stock is the No. 1 holding across Ark Invest's ETFs.
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AVGO Stock
Broadcom stock rose 4.4% to 608.15, moving above the 50-day line and breaking a trendline, offering an early entry. The chip giant is working on an official 645.41 buy point from a cup-with-handle buy point, according to MarketSmith analysis. The relative strength line for AVGO stock is already at a new high. The RS line, the blue line in the charts provided, tracks a stock's performance vs. the S&P 500 index.
LLY Stock
Eli Lilly stock edged up 0.7% to 301.48 after finding support at its 21-day and 10-week lines. On Monday, LLY stock jumped off those levels as the FDA OK'd a diabetes drug that's seen as a blockbuster obesity fighter. Shares closed off session highs but Lilly was still up 2.7% Monday. The drugmaker has a 314.10 buy point from a flat base as part of a base-on-base pattern.
Dollar Tree Stock
DLTR stock fell 3.2% to 156.35 on Tuesday, dropping below the 50-day line to a six-week low. Dollar Tree stock could be actionable if it moves above its 50-day and 21-day lines, which would coincide with breaking a trendline. Shares are working on a possible new base. Dollar Tree earnings are due on May 26.
But DLTR stock fell 5% early Wednesday as Target joined Walmart in a big earnings miss.
Elon Musk-Twitter Saga
Musk said the Twitter takeover can't move forward unless management provides more clarity on how many users are fake accounts. Twitter says it's provided its good-faith estimates, and that it's sticking with Musk's $54.20 takeover price. Musk seems to want to get out of the deal, or at least to negotiate a much-lower price tag. He even called on the SEC to investigate Twitter, after years of mocking the watchdog agency.
Meanwhile, Twitter released documents showing that Musk discussed a buyout with its board before he belatedly disclosed a 9.1% "passive" TWTR stock stake. Late Tuesday, Twitter's board said it intends to "enforce" the Musk takeover.
Experts say Musk might struggle to get out of the Twitter deal, but any legal fights could, theoretically, last for years. Twitter may want to settle and move on. But the Twitter saga also has been a headwind for TSLA stock, a significant hit to Musk's massive wealth and to the portfolios of many of his most-fervent supporters.
Tesla stock rose 5.1% on Tuesday to 761.61, rebounding from the worst close since late August. Twitter stock climbed 2.4% to 38.28, snapping a seven-day sell-off
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Market Rally Analysis
The major indexes gapped higher with a burst of volume Tuesday morning. The major indexes pulled back significantly in midmorning and modestly during Powell's midafternoon speech, but both times rebounded back to the best levels of the day.
The major indexes all showed strong price gains, especially the Nasdaq and S&P 500. NYSE and Nasdaq volume rose modestly vs. the prior session.
This is an important day to read The Big Picture to stay in sync with the market direction.
Energy stocks continue to be market leaders. Fertilizer plays are trying to reclaim a leadership role. Some drugmakers like LLY stock are in good position.
Chipmakers had a good session, but AVGO stock stands out as being actionable. Tech stocks generally need a lot of repair work.
A number of sectors could be promising with further market gains.
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What To Do Now
The market rally attempt showed strength in Tuesday's session. But the major indexes have only retaken the 10-day moving average. There's still some distance to get up to the 21-day exponential moving average, with a long way to go to reach the 50-day and 200-day lines, let alone all-time levels.
Investors could add some exposure, either via leading stocks or a broad-market ETF. But don't rush in, and be ready to pull back out. The current market could quickly run out of steam or run for a few weeks up to the 50-day line before retreating, as the major indexes did in late March.
Investors should be working on their watchlists. Look for stocks with strong relative strength, especially those that are near potential entries.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
