Dow Jones futures fell modestly overnight, along with S&P 500 futures and Nasdaq futures, with an Apple iPhone event in focus Wednesday. The ailing stock market rally lost more ground as Treasury yields spiked.
The major indexes fell further from their 50-day moving averages. The Nasdaq, extending its losing streak to seven days, undercut its late June lows intraday.
It’s not a good time to be adding exposure, but investors should look for stocks with strong relative strength. Enphase Energy (ENPH), Ulta Beauty (ULTA), Cigna (CI), Waste Connections (WCN) and Waste Management (WM) all have relative strength lines at 52-week highs. The RS line tracks a stock’s performance vs. the S&P 500 index and is an easy way to spot leaders and laggards in any kind of market. An RS line hitting a new line as, or before, a stock breaks out is especially bullish.
ENPH stock, Waste Connections and Ulta Beauty are flashing buy signals, though the market environment makes any buys risky right now.
Enphase and WCN stock are in the IBD 50. ENPH stock is in the IBD Big Cap 20.
The video embedded in this article discussed Tuesday’s market action and analyzed Enphase, Sunrun (RUN) and WCN stock.
Chinese EV startup Nio (NIO) and sporting goods retailer Academy Sports & Outdoors (ASO) will report before Wednesday’s open. Nio stock is struggling along with most China EV makers. ASO stock is trying to hold support at its 50-day line. A strong bounce from that level could offer an early entry.
Apple iPhone Event
Apple (AAPL) will unveil the iPhone 14 and a new Apple Watch at a Wednesday event at 1 p.m. ET. The latest Apple iPhone is expected to boast incremental improvements — faster processor, better camera, and improved battery life — vs. revolutionary changes. Still, the new products are key for the holiday shopping season.
Apple stock dipped 0.8% to 154.53 after hitting resistance at the 50-day line. Shares tumbled below the 200-day and then the 50-day last week. The RS line for AAPL stock isn’t far from highs, but the market has been weakening.
Dow Jones Futures Today
Dow Jones futures fell 0.35% vs. fair value. S&P 500 futures sank 0.3% and Nasdaq 100 futures retreated 0.35%.
Crude oil futures and natural gas futures declined more than 1%.
China has more than 60 million people in lockdowns or partial lockdowns amid rising Covid cases around the country. A full lockdown continues in Chengdu, the provincial capital of industrial southwestern province Sichuan, is likely to be extended. Tech hub Shenzhen is under significant restrictions. These restrictions, and the prospect of serious curbs indefinitely around the country as cases flare up, are taking a toll on economic activity.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Rally
The stock market rally opened with modest gains but the indexes soon retreated. Despite an intraday bounce, stocks faded again.
The Dow Jones Industrial Average fell 0.55% in Tuesday’s stock market trading. The S&P 500 index declined 0.4%. The Nasdaq composite lost 0.7%. The small-cap Russell 2000 gave up 0.9%.
U.S. crude oil prices rose 1 cent from Friday’s close to $86.88 a barrel. But that’s after being up 4% Monday morning as OPEC+ unexpectedly cut production quotas slightly. Natural gas futures tumbled 7.3%, adding to Friday’s solid losses and continuing to retreat from 14-year highs. That’s despite Russia saying it won’t restore natural gas flows to Europe unless sanctions are lifted.
The 10-year Treasury yield surged 15 basis points to 3.34%, closing in on June’s 11-year high of 3.48%. The 10-year yield hit a recent low of 2.52% on Aug. 2.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.2%. The iShares Expanded Tech-Software Sector ETF (IGV) lost 0.8%. The VanEck Vectors Semiconductor ETF (SMH) slid 1.1%.
SPDR S&P Metals & Mining ETF (XME) rose 0.7% and the Global X U.S. Infrastructure Development ETF (PAVE) edged up 0.2%. The Energy Select SPDR ETF (XLE) sank 0.9% and the Financial Select SPDR ETF (XLF) dipped 0.2%. The Health Care Select Sector SPDR Fund (XLV) inched up 0.1%
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) retreated 1.2% and ARK Genomics ETF (ARKG) 1.8%.
Five Best Chinese Stocks To Watch Now
High RS Stocks
Enphase stock jumped 4.9% in above-average volume, rebounding from the 21-day moving average and breaking the downtrend in a short consolidation. Investors could buy ENPH stock here. It’s a top stock in the No. 1-rated Energy-Solar group, with Array Technologies (ARRY), Sunrun (RUN) and the Invesco Solar ETF (TAN) among those setting up. But any market rebound could quickly get turned back.
ENPH stock could have a flat base on a weekly chart after this week.
ULTA stock rose 1.1% to 427.82, holding above a 417.08 double-bottom buy point. Shares of the beauty products retailer have struggled to close above a prior buy point of 429.58. ULTA stock has been rangebound for the past year.
Cigna stock dipped 0.5% to 285.25, finding support around its 21-day moving average and just above its 10-week line. CI stock is just in range of a 273.67 buy point first cleared in early July. Shares of the health insurer are just above an alternate entry at 282.43. Cigna stock could be working on a three-weeks-tight pattern while a traditional base could take a couple more weeks.
Waste Management stock edged up 0.4% to 169.12. Shares hit 170.28 intraday, exactly matching a still-valid consolidation buy point, according to MarketSmith. It’s also hitting resistance at the 21-day moving average and a short downtrend. WM stock did have three declines in above-average volume last week.
Waste Connections stock broke the downtrend of a handle on Tuesday, offering an early entry. But shares closed up 0.5% to 141.30, well off intraday highs. WCN stock has a 144.56 cup-with-handle buy point. Other stocks in the highly rated Pollution Control group are faring well.
Market Rally Analysis
The Nasdaq has now fallen for seven straight sessions. So has the Russell 2000. The Dow Jones and S&P 500 have just one up day in that stretch. All are starting to lose sight of their 50-day moving averages.
Arguably the market is due for a bounce. But that wouldn’t be that meaningful.
The major indexes reclaiming their 50-day and 21-day lines would just be a first step. The 200-day moving average would be the true hurdle.
The 10-year Treasury yield jumped yet again, near long-term highs and racing higher since early August. It’s hard for stocks to withstand higher Treasury yields, especially when that also pushes the dollar higher.
Solar and pollution control stocks are among the leaders. Health insurers, energy stocks and biotechs are doing relatively well.
Time The Market With IBD’s ETF Market Strategy
What To Do Now
Investors should have minimal exposure and not look to add much exposure, if any. If you didn’t scale back much in the past couple of weeks, you might look to take profits or cut losses.
Staying largely on the sidelines until there’s real signs of market strength may mean passing up some buying opportunities, some of which may work out well. But if the market really does have legs, then there will be plenty of chances to make money. If the market jerks up and down or sells off, a high cash holding will be key.
If you can’t resist and take a position in, say, ENPH stock or Waste Connections, be aware of the elevated risks with the market struggling and the key indexes facing multiple resistance areas.
Enphase Energy and other solar names are worth watching. So are stocks with strong relative strength broadly. That is where the next round of potential leaders will likely be. So build up your watchlists with high RS stocks.
But in a tough market, relative winners can be absolute losers.
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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