Dow Jones futures fell sharply early Wednesday along with S&P 500 futures and Nasdaq futures, amid recession fears mounting as Fed Chair Jerome Powell was scheduled to testify before Congress Wednesday morning.
The stock market rally attempt had a strong session on Tuesday. But it’s still a rally attempt within a bear market.
Chen energy (LNG), Exxon Mobile (XOM), Eli Lilli (LLY), Dollar General (DG), Tesla (TSLA) rival Li car (LI), UnitedHealth (UNH) and Northrop Grumman (NOC) showed a strong positive impact, with relative strength lines at or near highs.
However, few quality stocks are currently in position. That’s just one of many reasons to stay on the sidelines. While a rally attempt is underway, it is not yet a confirmed uptrend.
Northrop shares and Eli Lilly are on the IBD leaderboard. Li Auto and Eli Lilly stocks are in the IBD 50. LLY stocks are also in the IBD Big Cap 20.
Dow Jones futures today
Dow Jones futures fell 1.2% from fair value. S&P 500 futures lost 1.45% and Nasdaq 100 futures lost 1.65%.
The 10-year government bond yield fell 9 basis points to 3.22%.
US crude prices fell 4.5%. President Joe Biden on Wednesday asked Congress to suspend the state gasoline tax of 18.4 cents a gallon for three months to provide temporary relief at the gas pump.
Copper prices fell more than 3% to a 15-month low amid a strong dollar and weaker economic growth.
Keep in mind that overnight action in Dow futures and elsewhere doesn’t necessarily translate to actual trading in the next regular trading session.
Fed Chair Powell testifies
Fed Chair Powell testifies on monetary policy before the Senate Banking Committee on Wednesday morning. Powell will appear before the House Financial Services Committee on Thursday.
It’s unclear if Powell will be breaking new ground as of last week. On June 15, the Federal Reserve hiked interest rates by 75 basis points, with the Fed chairman saying either 50 basis points or 75 basis points are on the table for the late July monetary policy meeting. Markets have almost fully priced in another three-quarter-point rate hike.
Fed Chair Powell is due to testify at 9:30 a.m. ET, right at the opening bell, although the Federal Reserve could release his prepared remarks earlier.
More Wall Street firms are now forecasting that the US or the world will fall into recession for the past few days, or practically putting the odds at 50-50.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock market rally Tuesday
The stock market rally attempt had a strong session. The Dow Jones Industrial Average rose 2.15% in trading on Tuesday. The S&P 500 index rose 2.45%. Tesla, Exxon, and UNH stocks were among the best-performing S&P 500 stocks, with the latter two names also being Dow giants. The Nasdaq Composite gained 2.5%. Small-cap Russell 2000 gained 1.8%.
The crude oil futures contract expiring in July rose 1% to $110.65 a barrel, below intraday highs. Crude oil rose 1.4% in August to $109.52.
The 10-year government bond yield rose 7 basis points to 3.31%.
Stock market forecast for the next six months
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) is up 3.3%, while the Innovator IBD Breakout Opportunities ETF (BOUT) is up 2%. The iShares Expanded Tech-Software Sector ETF (IGV) is up 1.9%. The VanEck Vectors Semiconductor ETF (SMH) is up 2.8%.
The SPDR S&P Metals & Mining ETF (XME) was up 1.6% and the Global X US Infrastructure Development ETF (PAVE) was up 1.1%. The US Global Jets ETF (JETS) gained 0.8%. SPDR S&P Homebuilders ETF (XHB) is up 0.4%. The Energy Select SPDR ETF (XLE) rallied 4% with XOM stock being a big component, and the Financial Select SPDR ETF (XLF) was up 1.5%. The Health Care Select Sector SPDR Fund (XLV) was up 2.3%, with UNH stock taking the top spot and Eli Lilly also being a notable component.
Reflecting more speculative story stocks, ARK Innovation ETF (ARKK) is up 4.4% and ARK Genomics ETF (ARKG) is up 3%. Tesla shares remain a key position in all Ark Invest ETFs.
The five best Chinese stocks to watch right now
Cheniere Energy’s stock rose 5.5% to 132.95, closer to its 50-day moving average. On Friday, LNG stock undercut several months of trading but then rallied in a big way. The LNG game is working on a consolidation with a buy point of 150.10 although there could be early entries. Several other LNG games also rallied back towards their 50-day moving average.
Exxon stock rose 6.3% to 91.51, recapturing its 50-day moving average and an arguably still valid 89.90 cup-with-henkel buy point. XOM stock rose to 105.57 on June 8 but soon gave up recent gains and plunged 14% last week.
Ideally, Exxon Mobil would move sideways and start forming a new consolidation before making any big headway.
On Tuesday, Exxon Mobil joined a $29 billion natural gas project in Qatar. Other partners are e.g ConocoPhillips (POLICE OFFICER), Eni (E) and Total Energies (TTE). Meanwhile, Credit Suisse upgraded its rating on Exxon stock to Outperform with a price target of $125.
Eli Lilly shares rose 2.2% to 297.35 and closed a hair below the 50-day moving average. A previous 314.10 buy point from a flat base/base on base structure is no longer valid. LLY stock is working on a new consolidation. A break above a short down sloping trendline would provide entry around 306.
Bristol Myers Squibb (BMY), Apex Pharma (VRTX) and Harmony Life Sciences (HRMY) show positive action.
Li car stock
LI shares rose 7.85 on Wednesday to 35.75, its highest close since January 2021. Li Auto shares almost broke above a buy point of 37.55 after a 55% deep consolidation. Ideally, LI stock would form a grip, the longer the better, and digest its tremendous recent gains.
China’s Li Auto on Tuesday unveiled the L9, a new hybrid SUV. It is more expensive than the Li One, which is already in the premium segment.
no (NIO) shot up 9.2% and Xpeng (XPEV) 6.8% as both continue to rally above their 50-day moving average but below their 200-day moving average. EV and battery giant BYD (BYDDF) is up 3.2% to 38.60 and working on a 39.81 Cup with Henkel buy point on a weekly chart.
Tesla stock jumped 9.35% to 711.11, just hitting its 21-day moving average in high volume. But the 50-day and 200-day moving averages are important hurdles. TSLA stock nearly undercut its late May lows last week, but didn’t.
Tesla vs BYD: Which EV Giant is the Better Buy?
NOC stock rose 4.5% to 463.77 and recaptured its 21-day and 50-day moving averages. Northrop stock has fallen solidly for the past two weeks, failing a cup-with-handle breakout. A new consolidation could emerge. A decisive move above the 50-day moving average could offer an early entry.
United Health Stock
UNH shares rose 6.25% to 480.32, recovering above the 200-day moving average. Stocks closed squarely around a downward sloping trend line. Any strength from this point could provide an early entry into UnitedHealth stock. However, investors could look to 507.35 as a double bottom buy point, which would also propel UNH stock above the 50-day moving average.
Dollar General Stock
DG shares gained 3.5% to 238.97, according to MarketSmith analysis, putting it back above the 50-day moving average and nearing a 240.07 cup with Henkel buy point. Dollar General stock was arguably ready for action after breaking a downward sloping trendline on Tuesday. The price level of 240 corresponds to the highs of DG stock in August and January.
Analysis of the market rally
Major indices staged a strong rebound on Tuesday, although volume was significantly lower than Friday.
After the Dow Jones, S&P 500 and Nasdaq Composite all fell to their lowest levels since late 2020 last week, a rebound was looming. All major indices are still below their 10-day moving averages. The 50-day moving average is a much higher hurdle, with the 200-day moving average and all-time highs a long way off.
The indices’ best percentage gains in history have come during bear markets or corrections, so Tuesday’s action wasn’t all that meaningful by itself.
The S&P 500 and Nasdaq Composite are on day two of a stock market rally attempt, while the Dow Jones is only on day one.
If the rally attempt holds up, investors could look for a follow-up day later this week to confirm the new uptrend. But this bear market has seen several confirmed market rallies that fizzle out immediately or within a few weeks.
Not many stocks are in position as the market sells off so badly in 2022.
Energy stocks rebounded after huge losses over the past week. Some names like Exxon Mobil and LNG stocks are looking interesting.
China EV names have been leading the way for the past few weeks, but Li Auto could probably use a longer break.
Ultimately, the stock market could struggle with aggressive Fed rate hikes and high recession risks. This is unlikely to change until inflation shows a significant slowdown, which is likely to take several months at best.
Time the market with IBD’s ETF market strategy
A market rally attempt is trying to get off the ground but has yet to prove its endurance. Even if there is a following day soon, investors should be cautious when re-entering the market, gradually increasing their exposure and exiting quickly.
If this rally attempt turns into a sustained uptrend that lasts for weeks, months, or years, there are ample opportunities to be heavily invested.
Now build your watchlists for stocks with strong relative strength, especially those that are holding or regaining key moving averages.
Read The Big Picture every day to keep up to date with market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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