Dow Jones futures fell sharply Monday morning, along with S&P 500 futures and Nasdaq futures, with Fed chief Jerome Powell looming large this week.
The stock market rally pulled back last week from key resistance while Treasury yields moved back toward 3%. Highly valued growth names, which had made big moves in the past two months, were among the biggest losers.
Investors should wait to see how the market pullback plays out before adding new exposure.
Bitcoin and other cryptocurrencies sold off hard Friday, but were relatively stable over the weekend.
Warren Buffett stocks Apple (AAPL) and Occidental Petroleum (OXY) are worth watching. Occidental Petroleum broke out Friday as Warren Buffett’s Berkshire Hathaway won regulatory OK to lift its OXY stake to 50%. AAPL stock is trading right around a trendline entry. Tesla (TSLA), Celsius Holdings (CELH), AstraZeneca (AZN), Monolithic Power Systems (MPWR) and Insulet (PODD) are also near various buy points.
Tesla CEO Elon Musk on Sunday announced a new price hike to the Full Self-Driving system.
CELH stock and Monolithic Power are on the IBD Leaderboard watchlist. AZN stock is on SwingTrader. MPWR stock is on IBD Long-Term Leaders. Celsius, Monolithic and Tesla stock are on the IBD 50. Monolithic and OXY stock are on the IBD Big Cap 20.
Insulet and AstraZeneca were IBD Stock Of The Day picks last week.
The video embedded in this article analyzed the market rally’s weekly action in depth, while also discussing Occidental Petroleum, Monolithic Power and AZN stock.
Fed Chief Powell
Fed chief Powell will give a policy speech Friday at the annual Jackson Hole meeting. Powell has used this speech in prior years to mark notable policy shifts. It’s unclear what he might say that would surprise markets. The Federal Reserve is in the middle of a rate hike cycle to combat high inflation. Policymakers may soon shift to smaller Fed rate hikes, but Powell may not be ready to tip his hand.
He could indicate longer-term challenges, such as tight labor supply due to demographics, that could spur the Fed to keep rates higher in the coming years.
Markets are divided over whether the Fed will hike interest rates by 75 basis points for a third straight time at the Sept. 20-21 meeting, or opt for a half-point move.
Even after his speech, there will still be several key economic reports before the September Fed meeting, including the August jobs report and consumer price index.
Dow Jones Futures Today
Dow Jones futures fell 0.9% vs. fair value. S&P 500 futures sank 1.1% and Nasdaq 100 futures 1.4%.
China cut its benchmark loan prime rate overnight to support a faltering economy. That’s after the central bank lowered two other key policy rates last week.
The 10-year Treasury yield fell 1 basis point to 2.98%. But yields rose on shorter-term maturities.
Crude oil futures edged higher. U.S. natural gas prices soared 5% as European natgas prices screamed higher again. Russia’s state-owned Gazprom said a key natural gas pipeline would be shut down again for it claims is needed maintenance. Germany once again reaffirmed that it will not keep its last three nuclear plants open past Dec. 31.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Bitcoin Steadies After Fall
Bitcoin tumbled Friday to around $21,000 after already retreating modestly earlier in the week. The digital currency stabilized over the weekend, trading just above $21,000 on Monday morning. Following a plunge below $18,000 in June, the Bitcoin price had rallied back to nearly $25,000 on Aug. 14. Much like speculative growth stocks, Bitcoin and cryptocurrencies struggle with rising Treasury yields. Higher yields also bolster the dollar.
Stock Market Rally
The stock market rally started off the week moving toward or above key resistance, but ultimately retreated, mostly or entirely on Friday.
The Dow Jones Industrial Average dipped 0.2% in last week’s stock market trading. The S&P 500 index fell 1.2%. The Nasdaq composite slumped 2.6%. The small-cap Russell 2000 skidded 2.9%.
The 10-year Treasury yield surged 14 basis points to 2.99%, including 11 basis points on Friday.
U.S. crude oil futures fell 1.4% to $90.77 a barrel last week, but rebounded well off weekly lows. Natural gas futures traded around 14-year highs.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) slumped 2.9% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) dipped 0.4%, erasing strong weekly gains. The iShares Expanded Tech-Software Sector ETF (IGV) sank 3.9%. The VanEck Vectors Semiconductor ETF (SMH) tumbled 4.2%, with MPWR stock a holding.
SPDR S&P Metals & Mining ETF (XME) sank 4.2% last week. The Global X U.S. Infrastructure Development ETF (PAVE) fell 1.4%. U.S. Global Jets ETF (JETS) descended 4.2%. SPDR S&P Homebuilders ETF (XHB) reversed lower, sinking 3%, ending an eight-week win streak. The Energy Select SPDR ETF (XLE) rose 1.3% with OXY stock a notable holding. The Financial Select SPDR ETF (XLF) gave up 1.8%. The Health Care Select Sector SPDR Fund (XLV) dipped 0.5% last week, but edged higher on Friday.
Tesla stock is a major holding across Ark Invest’s ETFs.
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Warren Buffett Stocks
OXY stock shot up 9.9% to 71.29 on Friday, running past a 66.26 cup-with-handle buy point in triple normal volume, according to MarketSmith analysis. Shares are now slightly extended from the 5% buy zone, so investors may want to wait for a pullback.
Occidental Petroleum has outperformed many other oil stocks as Warren Buffett’s Berkshire has amassed an OXY stock stake of just over 20% in recent months.
On Friday, Berkshire disclosed that the Federal Energy Regulatory Commission approved its request to buy up to 50% of Occidental Petroleum, triggering the breakout. Berkshire filed for the right to do so on July 11, the company said Friday.
That news raised expectations that Berkshire might try to buy all of Occidental or take control. But Buffett hasn’t approached Occidental about doing so, the Wall Street Journal reported, something the hostile-averse investor would likely do before mounting any bid.
Berkshire’s No. 1 position is in Apple, which outperformed other megacaps and the broader market in the past two months. Apple stock fell 1.7% to 171.55 on Friday. The Dow Jones tech giant ended a six-week winning streak, but only dipped 0.3%. AAPL stock is back below a downward-sloping trendline, currently around 173, which could serve as an early entry. The official buy point is 183.04. Ideally, Apple stock would form a handle soon.
Other Stocks To Watch
Tesla stock fell 1.1% to 890, retreating back below the 200-day line. On Tuesday, TSLA stock hit 944, a three-month high and clearing an aggressive entry. Tesla overall held up much better than rival EV makers and Ark-type stocks last week, but is a long way from the 1,208.10 official buy point.
On Aug. 25, TSLA stock will split 3-for-1. It’s unclear if this will be a positive or negative catalyst. Tesla proposed the split months ago, while shareholders approved it on Aug. 4.
Tesla CEO Elon Musk said Sunday that the price of Full Self-Driving will rise to $15,000 from $12,000 in North America on Sept. 5, after the planned wide release of FSD Beta 10.69.2. Full Self-Driving, despite its name, is a Level 2 driver-assist system. A declining percentage of new Tesla buyers purchase FSD, but it’s still a big money maker.
The FSD price hike follows fresh information requests from the National Highway Traffic Safety Administration for the EV giant as part of ever-growing Autopilot safety probes.
Tesla stock fell more than 2% Monday.
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CELH stock fell 6.5% to 98.28 last week, but is finding support around its 21-day moving average. A brief undercut of the 21-day line could be useful. After surging from late May, Celsius stock has now formed a handle on a deep, nine-month consolidation, offering a 109.84 buy point.
AZN stock rose 0.8% to 67.17 last week, nearly reclaiming an old 67.50 buy point after rebounding from the 50-day line the prior week. The relative strength line has weakened in recent weeks as AstraZeneca stock consolidated while the broader market advanced. But AZN stock and other defensive growth names may be ready to outperform once again.
AZN stock rose slightly early Monday, suggesting a possible buy-point test.
MPWR stock fell just over 3% in the latest week to 511.65, which was an inside week vs. the prior week. Monolithic Power stock has a 541.49 cup-with-handle buy point after the chipmaker surged from early July to early August. A fall to the 21-day moving average would coincide with the 500 level and just undercut the handle’s lows.
PODD stock dipped 1.2% to 267.42 last week. The diabetes products maker’s stock has a 276.48 buy point in a deep double-bottom base. Insulet stock could use a bit more of a shakeout, perhaps to the 21-day moving average.
Market Rally Analysis
The stock market rally hit resistance around the 200-day moving average last week. The S&P 500 came within one point of that key level while the Dow Jones and Russell 2000 moved above it during the week, but ultimately finished below.
Initially the major indexes paused, resisting the pullback even as ARKK and highly valued growth names saw sharp losses. But on Friday, the Nasdaq finally dropped below its 10-day moving average, moving toward its 21-day line.
The major indexes had run up for several weeks, with many former leaders surging 50%, 100% or more off the bottom. So the 200-day line was a logical place for a retreat.
Rising Treasury yields helped provide a news hook for last week’s retreat. Higher rates are a drag on stocks, especially highly valued growth names. Rebounding energy prices, if sustained, could limit or even halt inflation’s decline while leading to bigger Fed rate hikes for longer.
However, higher energy prices are good news for oil and gas stocks such as Occidental Petroleum, which was among the big winners last week.
Drugmakers and defensive growth stocks held up relatively well, including AZN stock and Hershey (HSY).
Nasdaq futures signal a retreat to the 21-day moving average at Monday’s open.
A pullback to the 21-day line could be good news for the market rally, letting stocks like Monolithic and Celsius carve deeper handles for a proper shakeout. But you never know if a modest pullback will turn into something more serious, or which sectors might have a tougher time.
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What To Do Now
Investors should be cautious about adding net exposure right now, while the stock market rally pulls back. If you decide to buy a new stock, you might offset that by taking partial or full profits in other holdings.
There isn’t a need to slash exposure so far, but don’t let decent gains fall to zero and be quick to cut losing positions.
This is a great time to be working on watchlists. There is still a lot of leadership or potential leadership in the market. A lot of stocks may carve handles, bases or pullbacks in the coming days, creating a slew of buying opportunities.
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.
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