Dow futures were down slightly overnight, along with S&P 500 futures and Nasdaq futures. The stock market fell sharply on Wednesday after the Federal Reserve rose strongly again and indicated a higher peak, or “ultimate” price.
This is a correction in the stock market. Investors should remain cautious, but look for leading names.
Centennial collectibles (CELH), Shock Wave Medical (SWAV), we had (we had), GlobalFoundries (GFS) and Energy Enphase (ENPH) All show strong relative strength in a weak market.
CELH and Shockwave Medical stock are on the IBD Leaderboard watch list. Celsius Holdings, Enphase and SWAV shares are in IBD 50. ENPH stock is listed on IBD Big Cap 20.
The video included in this article discusses Wednesday’s market roller coaster movement and analyzes Celsius, ATI, and GFS stocks.
As expected, the Fed raised its key interest rate by 75 basis points for the third consecutive meeting, and raised the target range to 3%-3.25%.
Fed policymakers now see the fed funds rate at 4.4% at the end of 2022, up from 3.4% after the June meeting. Here’s what markets are pricing in: another 75 basis points at the November meeting, followed by 50 basis points in December, for the year-end range of 4.25%-4.5%.
The central bank also signaled some modest tightening in 2023, forecasting the fed funds rate to be 4.6% at the end of next year versus the 3.8% forecast in June. This is also not in line with what market watchers expected for the final price. Policy makers expect the rate to decline to 3.9% in 2024.
Federal Reserve Chairman Jerome Powell reiterated that the central bank will not give up on inflation. He noted that a “soft landing” would be difficult, but did not say what the chances of a recession were. “At some point” the Fed will slow the pace of rate hikes, Powell said, but did not indicate when that might happen. He added that Fed policy would need to remain “restricted” for some time.
Fed Chairman Powell said the labor market remains “unbalanced,” although he added that commodity prices appear to have peaked.
Dow jones futures contracts today
Dow futures are down 0.4% against fair value. S&P 500 futures fell 0.6%. Nasdaq 100 futures were down 0.8%.
The 10-year Treasury yield rose 4 basis points to 3.55%.
Remember that overnight action in Dow Jones futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
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stock market Wednesday
The stock market rose modestly on the Fed’s meeting decision, then set off on a rolling round that ended at session lows.
The Dow Jones Industrial Average was down 1.7% in stock market trading on Wednesday. The S&P 500 fell 1.7%. The Nasdaq Composite tumbled 1.8%. Small cap Russell 2000 fell 1.5%
US crude oil prices fell 1.2 percent to $82.94 a barrel.
The 10-year Treasury yield fell 6 basis points to 3.51% after briefly hitting 3.62% following the Fed’s rate hike. The 2-year Treasury yield rose above 4% to close around 4.04% but is far from session highs.
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) is down 1.8%. Shares of iShares Expanded Tech-Software Sector ETF (IGV) fell 1.4%. The VanEck Vectors Semiconductor Index (SMH) lost 0.8%.
The SPDR S&P Metals & Mining ETF (XME) is down 2.1% while the US Global Jets ETF (JETS) is down 4% on a bad day for travel play. The SPDR S&P Homebuilders ETF (XHB) was down 1.1%. The Energy Select SPDR ETF (XLE) is down 1.5% and the Financial Select SPDR ETF (XLF) is down 2.1%. The SPDR Fund (XLV) for select healthcare in the healthcare sector decreased 1.7%.
Reflecting the speculative story stocks, the ARK Innovation ETF (ARKK) is down 2.65% and the ARK Genomics ETF (ARKG) is down 2.7%.
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Celsius shares fell 3.9 percent to 98.23 on Wednesday. Stocks retreated to find support at their 10-week moving average after a 209% increase from early May to late August. In another two weeks, CELH stock could have a new base, with 118.29 buying points. Investors can use 108.47 as an early entry for the energy drink maker.
The relative strength line of CELH stock is at record levels.
SWAV stock fell 1.85% to 284.69 on Wednesday, reversing down from 300.96 on the day. Shockwave stock continues to find support around the 21-day line.
ATI . stock
ATI stock lost just over 2% to 29.67, trading around the 21-day line after pulling back from a seven-year high of 33.31. The specialty bullion maker’s shares fell to a previous base high and above the 10-week line. A 10-week streak bounce can provide early entry, with a fit rule remaining for another week.
While ATI’s stock has fallen, its RS streak is at higher levels.
GlobalFoundries stock fell 0.9% to 56.29. This is just above the 50-day and completely new 200-day line, while the GFS stock is just below the 10-week line. The chip foundry’s 2021 IPO features a deep, double-bottomed base with a handle, providing 66.06 points of purchase. At the end of this week, the GFS indicator will be long enough to be its own base, with the same entry 66.06.
Enphase stock fell 15 cents to 304.56, and continued to find support from the 21-day moving average. ENPH stock is still extending from the 50-day streak, but it’s getting lower. Enphase’s RS line hit new highs for weeks.
stock market analysis
As usual, the stock market plummeted after the Fed’s rate hike decision, new rate expectations and Powell’s comments, and briefly rose strongly before finally closing with sharp losses. The major indicators were finally ugly, outside the bearish reversal sessions.
While markets were not surprised on Wednesday, the Fed’s tone in general is likely to be more hawkish than anticipated. But, in the end, the Federal Reserve is aggressively raising interest rates despite rising recession risks, in order to bring inflation back into its fund.
Markets often have a one-day Fed reaction. But even if stocks rebounded on Thursday, it wouldn’t be meaningful.
All major indicators broke their recent lows on Wednesday and missed the 50 day moving averages. June bottoms are not far off.
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What are you doing now
In the end, it’s not the news that matters, but the market’s reaction to the news. The stock market did not react well to the decision of the Federal Reserve’s meeting on Wednesday.
Can the market bounce back in the short term, or even a good rise over several weeks? surely. But investors will want to see more evidence.
Leading stocks such as Celsius, Shockwave and Enphase may be flashing buy signals early in the market rally attempt. But investors have to balance the desire to get into hot stocks quickly versus making sure that a broad-based uptrend is underway. If the market is heading towards its lows in June or later, the relative leaders are likely to break down.
If the real stock market consolidates, there will be plenty of opportunities. The key is to be ready.
Work on those watchlists. Focus on stocks with strong relative strength and names that hold or regain key moving averages.
Read the big picture every day to stay in sync with market trend, stocks and leading sectors.
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