Dow reverses lower on Fed and recession fears; Tesla, Megacaps Hit the Resistance

Dow futures fell slightly after hours, along with those for the S&P 500 and Nasdaq futures.


The stock market rally reversed lower on Wednesday, with the S&P 500 and Dow Jones cutting or testing key levels, amid surprisingly weak economic data and hawkish Fed officials.

an Apple (AAPL), Microsoft (MSFT), a parent from Google the alphabet (The Google) And Tesla (TSLAThey all hit resistance at key levels on Wednesday. None of these huge cabins are near a point of purchase.

Some blue chip stocks, such as Celsius (CELH), while others eased modestly with a few moving higher.

Alcoa reported its earnings after the close. The aluminum giant posted a quarterly loss on the line while sales fell short. AA stock fell strongly in the extended trade. Stocks have been rising since late September, and recently reclaimed the 200-day line.

Netflix (NFLX) headlines Thursday’s earnings reports. NFLX stock drifted lower on Wednesday, not far from multi-month highs. Netflix earnings, subscriber scores, and trends will also be important for streaming plays such as Disney (dis).

Dow jones futures today

Dow futures fell 0.15% against fair value. S&P 500 futures were down 0.1% and Nasdaq 100 futures were down 0.1%.

Crude oil futures fell 1%.

Remember to work in overnight Dow Jones futures contracts and elsewhere that does not necessarily translate into actual trading in the next regular session Stock market session.

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Stock market rise

Wednesday’s stock market rally started with modest to strong gains, but quickly turned into a solid bearish move as investors digested economic data and the Fed’s comments.

Before the market opened, PPI, retail sales and industrial production all showed significant declines in December, much more than expected. Cooler inflation and a rapid slowdown in the economy fueled expectations of a slower and stalled Fed rate hike in the near term, but also stoked recession fears.

St. Louis Fed President James Bullard and Cleveland Fed President Loretta Meister both said they expect the central bank to raise interest rates above 5%. This is in line with the Fed’s forecast of 5.1% “final rate” but slightly more than what markets are currently expecting.

Later , Fed’s Beige Book Report Projected ‘Moderate Growth’ in the coming months. Many Fed regions reported slowing inflation, but only a few saw labor markets weaken.

The Dow Jones Industrial Average is falling

The Dow Jones Industrial Average fell 1.8% on Wednesday Stock market trading. The S&P 500 fell 1.6%. The Nasdaq Composite fell 1.4%. Small cap Russell 2000 fell 1.6%.

Apple stock fell 0.5% to 135.21 but pulled back from the intraday high of 138.61, below the 50-day line. MSFT stock crossed the 50-day line during the day but closed down 1.9%, at 235.81. Early Wednesday, Microsoft said it would cut 10,000 jobs, or 5% of its staff. AAPL and Microsoft are components of the Dow Jones, S&P 500 and Nasdaq.

Google stock fell 0.2% after hitting resistance at the 50-day line for the third consecutive session, but found support at 21 days.

Tesla lost 2.1% to 128.78 after hitting 136.66 Wednesday morning. Shares are back below the 21-day line after jumping 7.4%. TSLA stock hit a bear market low of 101.81 on January 6 but rebounded that day and beyond. Tesla rebounded on the hope that sweeping price cuts will support demand, but earnings growth looks set to slow in 2023.

The 10-year Treasury yield fell 16 basis points to 3.37%, its lowest level in four months. The two-year Treasury yield, which is closely linked to Fed policy, fell to 4.11%, its lowest since early October.

Markets have basically held the Fed’s quarter-point rate hike on February 1st. Investors strongly favor another quarter-point increase in late March, bringing the fed funds rate to 4.75%-5%. But there is now a 25% chance of not moving at that time.

US Crude Oil declined 0.9% to $79.48 a barrel, down from $82.38 on the day. Natural gas fell 7.7%. Copper prices pared their daily gains to close just 0.3%, but rose 13% in a nine-day winning streak.

Exchange Traded Funds

Among the ETFs, the Innovator IBD 50 ETF (fifty) sank just over 1%. iShares Expanded Technology and Software ETF (IGV) lost 1.25%, with a large stake in MSFT shares. VanEck Vectors Semiconductor Corporation (SMH) decreased by 0.6%.

Reflecting stocks with more speculative stories, the ARK Innovation ETF (ark(down 2.9% and ARK Genomics)ARKG) fell 1.6%. TSLA stock remains a major holding across Ark Invest’s ETFs. Cathie Wood’s Ark has been loading up on Tesla in recent weeks.

SPDR S&P Metals & Mining ETF (XME) down 1.7%, and AA stock was a notable component. American global aircraft (Planes) fell 1.4%. Homebuilders SPDR S&P (XHB) rejected 1%. Energy Defined Fund SPDR ETF (xle(giving up 1.8%, Financial Select SPDR ETF)XLF) lost 1.9%. SPDR Health Care Sector Selection Fund (XLV) fell 1.4%

Top five Chinese stocks to watch now

Market rally analysis

The stock market rally suffered a bearish reversal on Wednesday after Tuesday’s mixed session.

The S&P 500 fell below the 200-day moving average, to just over 50 days. The Dow fell below the 21-day and 50-day lines after regaining those levels on January 6.

Russell 2000 approached its late 2022 highs on Wednesday, but reversed lower for the second day in a row, this time with a more significant swing.

The Nasdaq Composite Index, which had climbed for seven sessions, declined modestly. But it is still above the 50-day line.

While markets are rejoicing at the cooler inflation data and slowing job and wage growth, they are not keen on an actual recession. So while investors initially celebrated the sharp fall in producer prices, they were wary of the Fed’s hawkish comments given the surprisingly weak retail sales and industrial production data.

It could be argued that the stock market’s rally was due to a downturn anyway. It was nice for the S&P 500 to hold the 200-day index and for the Dow Jones to find support at the 50-day, but they haven’t broken down decisively.

The question now is whether Wednesday’s pullback was just a healthy pause or something more serious. A clear break below the 50-day level would be more worrying for the S&P 500.

Not surprisingly, as the S&P 500 hit resistance, huge corporate names such as Apple, Microsoft, Google, and Tesla fell off key levels.

Blue-chip stocks generally declined. Some recent buy points have been tested or reduced, such as CELH stock. But Celsius, which fell 9.6% to close below the 50-day line, was hit unusually hard.

Several other leaders who were looking to extend needed market pauses to form handles or pull back to moving averages.

Meanwhile, Chinese stocks are falling this week after reopening a big rally.

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What are you doing now

Just as the stock market rally started to gain momentum, the pullback came on Wednesday. But after a strong rally that started on January 6, the major indices and blue-chips in general gave up a fraction of their recent gains. This is in contrast to recent months, where indices will have a solid day or two that can be quickly undone.

However, this is why you need to be patient, adding exposure gradually, and only if the market attracts you. Don’t buy stocks extended, and don’t get too concentrated in a particular stock, sector, or topic.

If you add a modest exposure over time in the past several sessions, you’ll probably be fine. But if you went from, say, 30% to investing entirely on Tuesday afternoon through Wednesday morning, you might have had some notable losses by Wednesday’s close.

Ideally, the market pullback will be modest and create new, safer buying opportunities. But be wary of new buys until this market move wears off. Use this time to update your watchlists, and look for new settings.

Keep in mind that earnings season can reverse a market rally, especially individual stocks. Netflix earnings Thursday night, with the oilfield services giant slb (slb) due Friday morning. Microsoft and Tesla are profitable next week, with Apple and Google next week, along with hundreds of other companies.

Read The Big Picture Every day to keep up with the market trend, stocks and leading sectors.

Please follow Ed Carson on Twitter at @tweet For stock market updates and more.

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