Dow Jones futures rose slightly early Wednesday, along with S&P 500 futures and Nasdaq futures. Crude oil prices raced above $111 a barrel, as purchasers shun Russian oil amid the Ukraine invasion. Federal Reserve chief Jerome Powell will argue that March interest-rate hike will likely be "appropriate" despite Ukraine-related uncertainty.
The stock market rally attempt suffered strong losses Tuesday as oil prices skyrocketed and Treasury yields tumbled amid signs that Russia's attacks could get a lot bloodier for Ukrainian civilians.
The major indexes hit resistance just shy of their fast-falling 21-day exponential moving averages, one of several potential resistance areas for a market rally attempt. Tesla stock reversed lower after briefly topping its 21-day line on Tuesday. Apple and Nvidia stock were turned away near their 21-day lines. Microsoft, which just closed above its 21-day and 200-day lines Monday, fell back Tuesday.
Russia's advance on Kyiv has stalled, according to U.S. military officials, amid stiff Ukrainian resistance and logistical challenges. But Russia's military is using artillery and other non-precision weapons against several cities, inflicting more civilian casualties.
Russia said it's ready to resume peace talks with Ukraine, but there appear to be no near-term prospects for an end to hostilities.
President Joe Biden gave his State of the Union speech Congress and the country Tuesday night. He discussed the Ukraine invasion, saying that Russian President Vladimir Putin underestimated the resolve of the U.S. and Europe. He announced that the U.S. will ban Russian airplanes from its airspace, following the European Union, U.K. and Canada.
Biden pushed to revive at least portions of the Build Back Better legislation, casting green energy plans as ways to reduce dependence on Russian energy. Republicans argue that Biden should push for more domestic crude and natural gas production.
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Fed Chief Powell Signals Rate Hike
Fed chief Powell will testify before Congress at 10 a.m. ET Wednesday. In prepared testimony released before the open, Powell said that a Fed rate hike seems "appropriate" at the March 15-16 policy meeting. But he acknowledged that the economic impact from Russia's Ukraine invasion is "highly uncertain." So he promised that policymakers would "be nimble."
Soaring crude and other commodity costs threaten to push up inflation even more, while also exacerbating supply-chain issues and weighing on economic growth. Meanwhile, labor force participation could ramp up with Covid cases and restrictions quickly waning, easing supply-chain and wage-inflation concerns.
Markets, which had almost fully priced in a half-point Fed rate hike a few weeks ago, had started to price in a slim chance that the Fed wouldn't raise rates by a quarter point increase.
Before the next Fed meeting, policymakers and investors will get the February employment report on Friday and the February consumer price index on March 10.
Key Earnings
Dow Jones component Salesforce.com reported better-than-expected earnings late Tuesday. CRM stock rose modestly overnight, signaling a move back above the 21-day line but fell below its fast-falling 50-day average. Salesforce stock dipped 0.8% to 208.89 on Tuesday.
Dollar Tree earnings beat Q4 views early Wednesday while sales just missed. The specialty discounter guided up for the current fiscal year, but sees revenue in-line at best. DLTR stock fell slightly before the open. Shares have been flirting with buy signals over the past few weeks. The relative strength line is already at a new high while Dollar Tree stock is basing, a bullish signal. Investors might want to use 144.56 as an entry point, just above the Jan. 6 high. The official buy point for DLTR stock is 149.47.
Tesla, Microsoft and Nvidia are on IBD Leaderboard. MSFT stock is on the IBD Long-Term Leaders list.
The video embedded in this article discussed Tuesday's market action and analyzed Northern Oil & Gas, Louisiana-Pacific and DLTR stock.
Dow Jones Futures Today
Dow Jones futures rose 0.35% vs. fair value. S&P 500 futures advanced 0.2%. Nasdaq 100 futures climbed 0.1%, well off morning highs. NYSE-listed CRM stock is offering a boost to Dow and S&P 500 futures.
The 10-year Treasury yield rose 7 basis points to 1.78%.
The ADP employment report showed a gain of 475,000 private-sector jobs in February. ADP revised January private payrolls to up 509,000 from down 301,000.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
Crude Oil Prices
U.S. crude oil prices are soaring 8% to nearly $112 a barrel, the highest since 2013. The Ukraine invasion and concerns about Russian crude supply are driving the latest huge run.
There are no sanctions vs. Russian crude oil or natural gas for now, but traders and shippers are increasingly "self-sanctioning," seeking to avoid negative publicity. A substantial portion of Russian crude oil exports isn't being bought, even with huge price discounts.
Self-sanctioning also appears to be affecting Russian natural gas and other commodities, such as wheat.
Natural gas futures rose modestly in the U.S., but skyrocketed more than 50% in Europe. Wheat futures leapt to their highest since 2008.
At today's OPEC+ brief meeting — with Russia being most of that "plus" — the group agreed to continue increasing production quotas modestly, unwinding pandemic-era cuts.
Wednesday morning, the Energy Information Administration will release official U.S. petroleum inventories, production and demand data. Late Tuesday, the American Petroleum Institute reported a sharp drop in domestic crude supplies, with gasoline stocks also down.
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Stock Market Rally
The stock market rally opened lower, briefly improved, but then sold off. The Dow Jones Industrial Average fell 1.8% in Tuesday's stock market trading. The S&P 500 index sank 1.55%. The Nasdaq composite retreated 1.6%. The small-cap Russell 2000 tumbled 2%.
The 10-year Treasury yield plunged 13 basis points to 1.71%, now erasing nearly all of its 2022 gains.
Crude oil prices erupted for an 8% gain to $103.41 a barrel, even as the U.S. and other nations announced a sizable but ultimately modest release of strategic petroleum reserves.
Gold futures popped 2.3% to a 13-month high.
Energy stocks rallied with surging crude oil prices. Defense contractors continued to go vertical while gold, steel and mining plays did reasonably well. Financials and travel plays were big losers.
ETFs
Among the best ETFs, the Innovator IBD 50 ETF gave up 1.5%, while the Innovator IBD Breakout Opportunities ETF fell 0.7%. The iShares Expanded Tech-Software Sector ETF retreated 0.9%, with Microsoft and CRM stock major components. The VanEck Vectors Semiconductor ETF slumped 3.15%. Nvidia stock is a major SMH holding.
SPDR S&P Metals & Mining ETF rose 2.5% and Global X U.S. Infrastructure Development ETF gave up 1.9%. U.S. Global Jets ETF tumbled 5.1%. The SPDR S&P Homebuilders ETF retreated 1.3%. The Energy Select SPDR ETF advanced 1% and the Financial Select SPDR ETF skidded 3.7%. The Health Care Select Sector SPDR Fund edged down 0.55%
Reflecting more-speculative story stocks, ARK Innovation ETF gave up 3.1% and ARK Genomics ETF 1.7%. As elsewhere, these ETFs are hitting resistance near their 21-day lines. Tesla stock remains the No. 1 holding across ARK Invest's ETFs.
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Stocks Hit 21-Day Resistance
Much like the market rally, several megacaps are hitting resistance at their 21-day lines.
Apple stock didn't quite get to its 21-day line, but reversed from its 10-day average, dipping just over 1% to 163.38. Above the 21-day line is the 50-day. AAPL stock clearing that key level might offer an early entry. But the official double-bottom buy point is 176.75. The RS line for Apple stock isn't far from highs.
Microsoft stock sank 1.15% to 295.34, back below its 21-day and 200-day lines. A move above Tuesday's high of 299.97 could offer an aggressive entry as a Long-Term Leader. But the 50-day moving average and the February peak of 315.12 are also key hurdles. The official buy point for MSFT stock is 349.77.
Nvidia stock skidded 3.75% to 234.70, testing its 200-day line again after coming right up to its 21-day on Monday. Getting above the 50-day line and the February peak of 269.25 are probably needed to offer an aggressive entry. It's a long way to reach NVDA stock's peak of 346.47.
Tesla stock rose to 889.88 Tuesday morning, moving above its 21-day, before retreating 0.75% to 863.93. The EV giant held up much better than other auto stocks or highly valued growth names. TSLA reclaimed its 200-day line on Monday, after rebounding from a 2022 low of 700 last week. Getting above the Feb. 9 high of 946.27 and the 50-day line could offer an aggressive entry. The official buy point is 1208.10.
Market Rally Analysis
The stock market rally attempt is running into resistance, with the Nasdaq and Russell 2000 snapping three-day win streaks.
They've still held onto the bulk of their recent gains. A pause right here isn't that concerning. The Dow Jones and S&P 500 have given up a bit more of their recent bounces, but their rally attempts are intact.
The market remains headline driven. As an investor, you don't need to follow the headlines obsessively, but you should be aware that the news could have big market and sector impacts.
That's especially true now. A lot of the assumptions built into markets are being upended. Inflation is at a 40-year high, and Europe is aggressively changing decades-old defense policies overnight.
Of course, that doesn't mean the stock market will go in the seemingly obvious direction — the huge 2020 stock market rally amid the pandemic and crashing economy proves that.
A follow-through day could still happen at any time to confirm the new market rally. A confirmed uptrend isn't guaranteed to work, as the recent market sell-off showed, but it's a positive signal.
Beyond the 21-day moving average, the major indexes face resistance at their February highs as well as their 50-day and 200-day moving averages, with their all-time highs well above that. So the next confirmed stock market rally will face plenty of technical hurdles in addition to major headline risks.
One positive: Sentiment is turning bearish. Just 29.9% of investment newsletters are bullish, below the pandemic crash low. The CBOE Volatility Index, or VIX is nearing its January highs. Excessive bearishness can indicate at least a short-term bottom soon.
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The market moving sideways — either with or without a FTD — wouldn't be a terrible thing. More stocks are forming bases now. There's already a large number of "blue dot" stocks in MarketSmith — stocks basing or breaking out with RS lines already at highs. A few more weeks could generate a new crop of consolidations, while some hot stocks might offer new chances to buy or add shares.
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What To Do Now
The market remains in limbo. A rally attempt has hit resistance, but is still intact. But there's no real reason to be increasing exposure.
While there are reasons to maintain holdings in hot groups and sectors such as energy, defense, fertilizer and steel, many of the leaders are already extended. Given the extreme volatility, investors may want to take partial profits in some recent winners.
Keep building those watchlists. The number of stocks setting up in bases with RS lines at new highs is increasing. So potential leadership is growing.
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.
