Dow Jones futures will open on Sunday evening, along with S&P 500 futures and Nasdaq futures, directly on the CPI inflation report and the Federal Reserve.
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The stock market rally slumped last week and major indices continued their trend to new highs, but then declined. It’s a tough environment to buy stocks.
Investors are getting a couple of big economic news this coming week. On Tuesday, the Ministry of Labor will release its November CPI inflation report. On Wednesday afternoon, the Federal Reserve will raise rates once again as Fed chair Jerome Powell signals for further tightening in early 2023.
This could be a catalyst for large market gains or losses, or volatile sideways may continue. Investors should probably wait for the inflation report and Fed news before adding risk.
Breakout failures or failures are common, as DXCM stock tumbled Friday after briefly clearing a buy point with FDA approval on Thursday.
But here are five stocks to watch: Dow Jones giants caterpillar (CAT) and Goldman Sachs (GS), sanmina (SANM), McKesson (MCK) and MercadoLibre (SHOULD). To be clear, none of these stocks are subject to litigation, especially as some work needs to be done on MELI stock.
Microsoft (MSFT) is doing relatively well for mega-capitals, Apple (AAPL) below the 50-day line and tesla (TSLA) is trying to avoid setting new bear market lows. However, MSFT stock remains well below the 200-day line and has not made much progress in the past month.
The video attached to the article delves into and analyzes the market movement Dexcom (DXCM), MercadoLibre and CAT stock.
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CPI Inflation and Fed Meeting
Earlier on Tuesday, the Department of Labor will release its November consumer price index. Overall and core CPI inflation rates should drop over the next few months only as comparisons become difficult. But service prices are stubbornly strong.
The Federal Reserve wants to see more significant reductions in services inflation and wage increases before stopping rate increases. At 2:00 p.m. ET, the Fed is expected to raise the fed funds rate by 50 basis points to 4.25% to 4.5%, ending the streak of four increases of 75 basis points. Investors will want some clues about the February meeting and how high the federal funds rate might ultimately be. Markets are currently pricing in another half-point Fed rate hike in February, but there is a reasonable chance for a quarter-point move.
Fed chairman Powell’s comments at 2:30 p.m. ET and the CPI inflation report could set the tone for Fed policy going into 2023.
Powell and several policymakers have signaled that a recession may be necessary to contain inflation.
Dow Jones Futures Today
Dow Jones futures open at 6pm ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.
Note that overnight trades on Dow futures and elsewhere do not necessarily translate into real trades in the next regular stock market session.
Join the IBD experts as they analyze stock rally tradable stocks on IBD Live
Stock Rally
The stock market rally saw significant pullbacks for major indices last week.
The Dow Jones Industrial Average fell 2.8% in stock market trading last week. The S&P 500 index lost 3.4 percent. The Nasdaq composite fell 4%. The minor Russell 2000 fell 5.1%.
The 10-year Treasury yield rose 6 basis points to 3.57%, recovering from 3.4% in the middle of the week.
U.S. crude futures fell 11% last week to $71.02 a barrel, while gasoline futures fell 9.8%. Both hit 2022 lows. Natural gas prices fell 0.6 percent.
ETFs
Among the key growth ETFs, the iShares Extended Technology-Software Industry ETF (IGV) fell 4.6% as Microsoft stock was a major holding. The VanEck Vectors Semiconductor ETF (SMH) fell 1.7%.
Reflecting more speculative story stocks, the ARK Innovation ETF (ARKK) fell 9.2% last week and the ARK Genomics ETF (ARKG) fell 8.1%. TSLA stock is a major holding in Ark Invest’s ETFs.
The SPDR S&P Metals & Mining ETF (XME) fell 6.4% last week. The Global X US Infrastructure Development ETF (PAVE) fell 2.85%. The US Global Jets ETF (JETS) fell 3.3%. The SPDR S&P Homebuilders ETF (XHB) fell 2%. The Energy Select SPDR ETF (XLE) is down 8.45%, firmly breaking the 50-day line. The Financial Select SPDR ETF (XLF) fell 3.9%. The Health Sector Selected SPDR Fund (XLV) fell 1.3% after climbing eight of the previous nine weeks.
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Apple stock fell 3.8% last week, dropping below this key level on Tuesday and hitting resistance there on Friday. Bad news about iPhone production may be priced in, and AAPL stock is rallying.
Shares of fellow Dow tech titan Microsoft also fell 3.8%, but held support at the 21-day streak, only modestly above 50 rising days. However, it is well below the 200-day line. MSFT stock is basically flat from a month ago, as are the S&P 500 and Nasdaq.
Tesla stock fell 8.1% last week despite gaining 3.2% on Friday. TSLA stock climbs above recent bear market lows. Tesla announced new Chinese incentives last week, with widespread media reports that the Shanghai factory will drastically reduce production or even halt Model Y production over the next few weeks.
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Stocks to Watch
Caterpillar stock fell 3.7% last week to 227.29, cutting below the 21-day line. The pullback can turn into a constructive shake-up. CAT stock has a buy point at 238 or 239.95 from a tall coupe base. One more week Dow heavy equipment giant could have a flat bottom with 239.95 point of purchase. A slightly longer pause allows the fast-rising 50-day streak to close the gap with CAT stock.
Goldman stock fell 5.6% last week to 359.14, making a round-trip from a trophy base with a buy point of 358.72, just above it. A solid jump from here could offer a fresh entry, especially if the 50-day or 10-week streak catches up. On the weekly chart, GS stock has a 13-month gripped bottom at 389.68 buy points, according to MarketSmith analysis. Last week, this created more depth in the handle, which could become a flat sole within a week.
Sanmina stock fell 7.3% last week to 62.48. SANM stock was firmly consolidating in the profit-making zone after breaking from a trophy base in October. Although the weekly drop is sudden, stocks could start a pullback towards the 50-day/10-week line and present a buying opportunity. SANM stock is also running on a possible flat base.
McKesson stock fell 4% last week to 371.37 and fell just below the 50-day and 10-week lines on Friday. MCK stock is working on a new consolidation after a sharp sell-off on November 10-11 that hit many defensive medical stocks hard. A move above the December 2 high of 389.45 could still offer an early entry close to the moving averages.
MELI stock fell 5.1% to 896.48, for the fourth week in a row. The Latin American e-commerce and payments giant has a buy point of 1,095.44 with a trendline entry of around 1,025. An aggressive entry could be a decisive retake of MELI stock’s moving averages, with 957 December 2 high as the trigger. MercadoLibre stock is bearish, with weekly losses coming in lighter volume with relatively strong positive closes.
Market Rally Analysis
A week ago, the stock market rally was reaching new highs as the S&P 500 broke above the 200-day line for the first time in months. But key indexes fell as investors reassessed the jobs report and Fed chairman Powell’s comments.
The S&P 500 dropped below the 200-day line, while the Nasdaq tested its 50-day line. Both hit resistance at the 21-day line late in the week. Russell 2000 dropped below the 200-day and 21-day lines and broke the 10-week line to 50 days.
The leader of the rally, Dow, holds support around 21 days.
The S&P 500 is basically where it was after November 10, when a moderate October CPI inflation report revived stocks. The Nasdaq and Russell 2000 returned to their early November levels, but also reached their late-October highs.
If you need to design a scenario that will entice traders to get battered over and over again, this current uptrend might be the plan: A market rally of several sessions of pullbacks after a few big one-day gains.
Still a confirmed market rally. However, further losses would be worrisome as the Nasdaq or especially the S&P 500 openly broke the 50-day line.
Tuesday’s November CPI inflation report and Wednesday’s Fed meeting announcement and Powell’s comments could provide a catalyst for a sustained market rally or a definitive sell-off. But they could also trigger another major market boom that seems decisive, followed by another pullback.
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what to do now
Investors should be cautious about adding risk until the CPI inflation report and the Fed meeting are in the rearview mirror. Even as markets bounce on inflation data and Fed chairman Powell’s comments, investors should be selective about new purchases in case major indices tumble in the next few sessions.
At some point, a sustained, stable market rally will prevail. When this happens, buying opportunities will be plentiful.
So get your stock market holiday shopping list ready. A large number of stocks from various industries are being established or close to being established.
Read the Big Picture every day to stay in sync with market direction and leading stocks and industries.
Please follow Ed Carson on Twitter: @IBD_ECarson for stock market updates and more.
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