Futures Waiting for Fed; This is what matters

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Dow Jones futures rose slightly overnight along with S&P 500 futures and Nasdaq futures, centered on the announcement of the Fed meeting. Major indices retreated on Tuesday as the Federal Reserve began its two-day policy meeting.




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Tesla shares briefly flashed an aggressive buy signal despite more signs of weaker than expected Tesla (TSLA) demand in China. That comes in the midst of a large Ford Motor (F) warning about delivery costs, as well as unfinished vehicles. Ford shares plunged 12%, with General engines (GM) down 5.6% despite an EV supply agreement with Hertz (HTZ).

In addition to Tesla, chip makers On semiconductor (Open impinj (PI) show strength along with Neurocrine Life Sciences (NBIX) and lithium giant (m²).

Apple (AAPL) rose for a second straight session. Apple stocks remain below key levels. Meanwhile, fellow megacap techs stock Microsoft (MSFT) and Google parent Alphabet (GOOGL) are at the 52-week low.

NBIX shares are listed on IBD Leaderboard. TSLA stock and On Semiconductor, also known as Onsemi, are on the IBD 50. ON shares are on the IBD Big Cap 20. Impinj is Tuesday’s IBD stock.

The video in this article discussed Tuesday’s market action and analyzed Neurocrine Biosciences, wolfspeed (WOLF) and PI stock.

Fed meeting

Policymakers appear to be stuck with a third consecutive rate hike by the Fed of 75 basis points, with an announcement Wednesday at 2 p.m. ET. Markets do see a small chance of a huge full-point hike.

The key is what the Fed sees now. Quarterly forecasts will indicate where the central bank sees the fed funds rate by the end of 2023, and under what economic conditions. Fed chief Jerome Powell made clear in his August 26 Jackson Hole speech that the Fed is willing to risk a recession to bring inflation under control.

Powell will speak at 2:30 p.m. ET and may offer some hints about short-term Fed rate hikes. Currently, the markets are betting on a fourth move of 75 basis points in November, followed by 50 basis points in December. That would push the fed funds rate to 4.25%-4.5% at the end of the year from 2.25%-2.5% currently. Before the August consumer price index on September 14, the markets were looking for 3.75%-4% at the end of 2022.

Dow Jones Futures Today

Dow Jones futures were up 0.1% from fair value. S&P 500 futures rose 0.15% and Nasdaq 100 futures climbed 0.2%.

Keep in mind that an overnight action in Dow futures and elsewhere does not necessarily lead to actual trading in the next regular trading session.


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Fair Tuesday

The stock market fell Tuesday ahead of the announcement of the Fed meeting. A late afternoon bounce faded into the lock.

The Dow Jones Industrial Average fell 1% in trading on Tuesday. The S&P 500 index lost 1.1%. The Nasdaq composite fell 0.95%. The small-cap Russell 2000 lost 1.4%.

Shares of Apple, which are part of the Dow Jones, S&P 500 and Nasdaq, rose 1.6% to 156.90. AAPL stock reached resistance on its 21-day and remains below its 50-day and 200-day lines after last week’s major downside reversal. But a decisive move above the 50-day and 200-day lines could provide another early access.

In October, US crude fell 1.5% to $84.45 a barrel. Crude oil futures in November, now the near-month contract, fell 1.7% to $83.94.

Ten-year government bond yields rose 8 basis points to 3.57%, another 11-year high.

ETFs

One of the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.3%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 1.5%. The VanEck Vectors Semiconductor ETF (SMH) fell 1.4%.

SPDR S&P Metals & Mining ETF (XME) fell 2.7%. The Energy Select SPDR ETF (XLE) fell 0.7% and the Financial Select SPDR ETF (XLF) fell 1.5%. The Health Care Select Sector SPDR Fund (XLV) lost 1.2%.

As a result of more speculative story stocks, ARK Innovation ETF (ARKK) fell 2.5% and ARK Genomics ETF (ARKG) pulled 1.6%. TSLA stocks are a major holding in Ark Invest’s ETFs.


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PI Stock

Impinj’s stock fell 2.5% to 89.66 on Tuesday. Shares of the tracking chip maker are finding support on the 21-day and 10-week lines. PI stocks are working on a new consolidation that should set a good footing by the end of Friday with a buy point of 99.10. Investors could use 93.46, just above short-term highs, as an early entry that is still close to the 10-week line.

The relative strength line is right at the highs, a bullish sign for PI stocks as it outperforms the S&P 500 index.

In stock

Shares of On Semiconductor fell 2.4% to 68.48 after rising 1.8% on Monday. Shares of the EV-focused chipmaker closed just below their 21-day and 10-week lines.

The RS line for Onsemi stock is around the highs.

After breaking out of a long, extinguished base in late August, ON stock could have a new, shallow base by the end of next week. Investors could use 73.03 as an aggressive entry, which would also bounce back above the top of the previous consolidation.

NBIX Stock

Neurocrine stocks fell 0.7% to 107.09 and found support again at the 21-day moving average. NBIX stocks are flat with a buy point of 109.36, according to MarketSmith’s analysis. The flat base is just above a previous consolidation, making this a base-on-base formation. Investors could use a move above Monday’s high of 108.71 as a slightly lower entry point. The RS line for NBIX stocks is at a new high.

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SQM stock

SQM shares fell 2.4% to 104.66, right on the 21-day line. Shares of the Chilean lithium-and-fertilizer giant tried to break out of a messy cup-with-handle base earlier this month, but never closed above the buy point of 113.80. The good news is that the 50-day line is starting to catch up.

The RS line for SQM stocks is near highs.

Tesla stock

Tesla shares rose as high as 313.33, extending gains slightly and above a very aggressive buy point of 309.22. But the shares faded and ended 0.1% to 308.73. TSLA stocks are close to a buy point of 314.74 from a short-term consolidation, within a much larger consolidation that could be a good footing by the end of this week.

The RS line has been rising lately to just below its early April highs.

Buying TSLA stock, or any stock for that matter, in the current market environment would be extremely aggressive.

CEO Elon Musk tweeted on Tuesday about Optimus, the humanoid Tesla Bot that he can show off on Sept. 30 on the company’s AI Day. Most experts say a useful humanoid robot for general use is still decades away. He also hinted at an improved Smart Summon or car park feature, which has had issues over the years.

However, Tesla China sales are lagging behind expectations. Local sales should still hit a record in September as capacity in Shanghai expanded again. But Tesla auto insurance registrations fell over the past week, a time when they tend to rise sharply.

Tesla China wait times have fallen sharply in recent weeks, with the EV giant resorting to a large insurance subsidy to boost sales at the end of the quarter. That could be a harbinger of actual price cuts later this year.


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Stock market analysis

Well, it’s a stock market correction. The S&P 500 and the Dow Jones interrupted last Friday’s lows on Tuesday before cutting losses somewhat.

The good news from Tuesday is that stocks did not climb to major Fed-related news. That’s in contrast to the August 26 Jackson Hole speech by Fed chief Powell, or the September 14 CPI inflation report.

It is no coincidence that the stock market struggles with higher government bonds.

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The summer bull case revolved around the Fed. First, the Fed was expected to slow rate hikes soon and then start cutting rates in 2023. Back then, there was still hope that the Fed would reverse rate hikes and take a break by the end of the year.

But now the Fed is on track to aggressively raise interest rates through the end of the year, with more possible in 2023. That means a lot more pain for the economy.

The current environment of low growth and high inflation has not exactly been easy for companies. ford, FedEx (FDX) and General Electric (GE) are among the warnings of the past week.

The sell-off of Ford’s stock Tuesday, after FDX and GE last week, shows that investors have not priced in significant gains that have disappointed. Expect many more warnings in the coming weeks.

Given the weakness in recent weeks, it is possible that the market will rebound on Wednesday after the Fed meeting and Fed chief Powell’s talk. Keep in mind that the market often changes course in response to day two at a Fed meeting.

Until there is clarity about when the Fed could slow down and stop the tightening, it is difficult to see the markets make any meaningful progress. It’s not hard to see major indices testing or undercutting their June lows.


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What to do now

The market correction is back in place as the Fed is poised to raise interest rates again sharply, with no end in sight. Companies are announcing major warnings amid tough macroeconomic conditions that are likely to get worse.

Investors should have little or no exposure and should not make new purchases. Wait for a confirmed uptrend, which probably means the major indices will regain their 50-day moving averages. Even in that scenario, other technical hurdles, as well as the Fed and the economic backdrop, should keep investors cautious.

For now, investors should work on their watchlists and focus on relative strengths such as NBIX stocks, On Semi and Tesla. Remember that today’s relative winners could collapse if the correction intensifies.

Read The Big Picture every day to stay up to date on market direction and leading stocks and sectors.

Follow Ed Carson on Twitter at @IBD_ECarson for stock updates and more.

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