Dow Jones Futures: The stock market sells off on hot inflation; This should worry investors
Dow Jones futures tipped higher last night, along with S&P 500 futures and Nasdaq futures, with Disney and Rivian earnings in focus. The stock market retreated to warmer-than-expected CPI inflation data, with the S&P 500 and Nasdaq breaking below recent lows.
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The market correction and the Nasdaq bear market show no signs of slowing down. Rebound attempts are half-hearted and quickly knocked down. And despite the market meltdown, the fear meters, a contradictory indicator, are still not rising.
At the end, Walt Disney (DIS) and Tesla (TSLA) rival Rivian (RIVN) reported weaker-than-expected quarterly results. But investors focused on Disney’s Disney + subscription numbers after the fantastic Netflix (NFLX) fell. Rivian shareholders signed the EV startup’s statement that it is increasing van shipments to larger customers Amazon.com (AMZN).
Tesla stock is approaching recent lows in its broad and loose consolidation. Tesla faces a number of short- and medium-term challenges.
In the meantime Merck (MRK) briefly broke out while Eli Lilly (LLY), Anthem (ANTM), Chevron (CVX) and Dollar wood (DLTR) is about their 50-day lines. All show relative strength.
Tesla, Anthem and LLY shares are on the IBD Leaderboard, while DLTR shares have been added to the Leaderboard watch list. MRK stock and Dollar Tree are on SwingTrader. Merck and CVX shares are on IBD Big Cap 20. Eli Lilly was Wednesday’s IBD Stock Of The Day.
Dow Jones Futures today
Dow Jones futures rose 0.15% to fair value. S&P 500 futures rose 0.1% and Nasdaq 100 futures rose higher. DIS stock is a Dow Jones and S&P 500 component.
Keep in mind that overnight trading in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
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Stock market Wednesday
The stock market was volatile at Wednesday’s opening after the consumer price index in April. Inflation fell to 8.3% from March’s 40-year high of 8.5%, but it was warmer than expected. Core consumer prices rose 0.6% compared to March.
Up-and-down trading became decisively negative, especially on the Nasdaq. The major indices sank to fresh 52-week low levels and closed close to their worst levels of the day.
The Dow Jones Industrial Average fell 1% in Wednesday’s stock market trading. The S&P 500 index gave up 1.6 per cent. The Nasdaq composite fell 3.2 percent. Small-cap Russell 2000 slipped 2.5 pct.
The 10-year government interest rate fell 7 basis points to 2.92%, its third fall in a row. This is after first rising to 3.04% – and even higher before the opening of the CPI data. Meanwhile, the two-year interest rate rose 1 basis point to 2.63%. The 2-year return is more closely linked to Fed interest rate movements, while the 10-year Ministry of Finance is feeling the effects of declining growth forecasts.
US crude oil prices rose 6% to 105.71 per share. barrel. With Shanghai and China Covid cases falling sharply over the past few weeks, expectations are growing that the Chinese government will ease economy-crushing shutdowns, increasing demand for crude oil and other commodities. But it has not happened yet.
ETFs
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.4%, while the Innovator IBD Breakout Opportunities ETF (BOUT) rose 0.15%. iShares Expanded Tech-Software Sector ETF (IGV) fell 3.3 percent. VanEck Vectors Semiconductor ETF (SMH) retreated 3.1%.
The SPDR S&P Metals & Mining ETF (XME) was down 0.7% and the Global X US Infrastructure Development ETF (PAVE) was up 1.4%. US Global Jets ETF (JETS) fell 2.4 percent. SPDR S&P Homebuilders ETF (XHB) fell 3.6%. Energy Select SPDR ETF (XLE) rose 1.3%, with the CVX stock being a major component. Financial Select SPDR ETF (XLF) fell 0.9 percent. Health Care Select Sector SPDR Fund (XLV) fell 0.7%, with Merck, Eli Lilly and ANTM shares all notable holdings.
As a result of more speculative history stocks, the ARK Innovation ETF (ARKK) fell 10.1% with key holdings Unity software (U) and Coin base (COIN) tumbles over weak results and guidance. ARK Genomics ETF (ARKG) slipped 7.8 pct. Both ETFs are at a two-year low. The TSLA share remains No. 1 across Ark Invest’s ETFs.
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Shares to see
Merck stock rose 1.6% to 89.20 and closed below a buy point of 89.58 cup-with-handle after breaking out earlier. Shares had traded close over the previous several sessions. The relative strength of the MRK stock had risen to new highs well ahead of Wednesday’s move.
The LLY stock rose 0.35% to 286.69, slowing progress after trying to move from its 50-day moving average. Technically, the Eli Lilly stock is still in a buying range from a 284 cup buying point, which was originally cleared almost two months ago. But investors may want to wait for the LLY stock to break a short downward trend, perhaps using the May 6 high of 298.25 as a trigger. After this week, Eli Lilly should have a flat base – part of a base-on-base formation – with a buy point of 314.10. The RS line for LLY shares is already at a new high.
The ANTM stock fell 0.4% to 487.36, reversing from modest gains near its 50-day line, technically back in a previous buying zone. The shares of the health insurance giant had retreated sharply over the previous few weeks. Anthem stocks could be actionable from the 50-day line, especially if it breaks above a short trend line. The RS line for ANTM shares is at a new high.
The DLTR stock fell 1.15% to 156.07, just below its 50-day line, just within a former buying zone like Anthem. A 50-day line jump over the 21-day line would also break a short downward trend line, offering an aggressive entry. The RS line for Dollar Tree stocks hits new heights.
The CVX stock rose 1.5% to 163.16, just below its 50-day line after moving above this level intraday. The Chevron stock is in a flat base with a buy point of 174.96 according to MarketSmith analysis. Investors can buy CVX shares if it rebounds from its 50-day high and clears the May 6 high of 170.97. The RS line for Chevron shares is at a new high.
Disney earnings
Disney’s earnings and revenue missed second-quarter accounting estimates. Disney + subscribers rose 8 million during the quarter to 137.7 million, hitting impressions of 134.4 million.
But ESPN + and Hulu subscriber levels were a bit missed, while Disney sees greater spending on content for its streaming services.
Last month, Netflix reported a drop in streaming subscribers for the first time in the first quarter. And it predicted an even bigger loss in Q2
The DIS stock fell 3% last night after rising solidly in the beginning. Shares fell 2.3% in Wednesday’s ordinary session to 105.21, a two-year low.
Netflix stock fell late after closing 6.35%.
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Rivian Earnings
Rivian reported a larger-than-expected loss, while revenue in the first quarter was far from consensus. However, the EV startup said it is stepping up production and deliveries of the EDV 700 van to Amazon, a major customer and investor.
Rivian has previously announced that it produced 2,553 vehicles in Q1. It was mostly Rivian R1T pickup truck, but also some R1S SUVs and commercial vans for its main customer, Amazon.com (AMZN). Rivian delivered 1,227 vehicles in the quarter.
Rivian said on Tuesday that it is on track to reach its 2022 production target of 25,000 electric cars, but that is half of its original target of 50,000.
The RIVN share rose 6% overnight in active trading. Shares fell 9.6% to 20.45 the following Wednesday Ford (F) confirmed that it sold 8 million shares in Rivian shares. Early reports of this Ford sale sent RIVN shares down 21% on Monday. The stock is at a record low, well below last November’s IPO of $ 78.
Tesla shares
Tesla stock fell 8.25% to 734 on Wednesday. It is still above its February 24 intraday low of 700, but the lowest closing since September last year. An increasingly ugly handle is now too deep to be valid. The RS line for TSLA equities, at or near consolidation highs in early April, is now close to recent lows. The Tesla stock chart, like so many other growth names, will need a lot of repair work.
Clearly, the stock market correction including the Nasdaq bear market is the biggest negative for the TSLA stock. But Tesla’s business faces a number of challenges.
The Tesla plant in Shanghai is barely making any vehicles right now after a key supplier suspended production earlier this week. The factory in Shanghai was closed from March 28 to April 19 and has had limited production since.
Meanwhile, competition is growing in China, with place bid (BYDDF) and several Chinese automakers will release Tesla Model 3 rivals in the coming months. Later in the year, the chip shortage is expected to subside. Although it should let Tesla make a few more electric cars themselves, rivals will be able to increase electric cars and overall car production significantly, ultimately reducing pricing for Tesla and the industry.
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Market analysis
After some volatile actions on Tuesday and Wednesday morning, the major indices fell markedly after the warmer-than-expected CPI inflation report. The S&P 500 and Nasdaq underscored the recent lows of 2022, killing their one-day “rallies.” The Dow Jones, which fell Tuesday, also hit fresh 52-week low Wednesdays.
The market correction continues to fall, with the Nasdaq bear market now 30% deep. The S&P 500 is 18.3% lower than the highest in January, close to the threshold of 20% bear market.
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So far, there are no real indications that the market is close to a bottom. While market fears are around recent highs, the CBOE Volatility Index, or VIX, fell 1.3% to 32.60 on Wednesday, even as the S&P 500 reached new lows.
But another conflicting indicator is, well, contradictory, with the recent bulls-bears reading of investment newsletter writers becoming more and more bearish.
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What should I do now
Staying out is still the best move. Yes, there are pockets of market power. But leading sectors are also not immune to sales pressures. Better to wait for a follow-up day to confirm a new market rally. Even then, investors should be careful.
Right now, there is not even a market rally attempt.
Stay engaged in the market, but do not become obsessed with every minute of actions during the day. Keep working on your watchlists.
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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