Dow Jones futures fell overnight, along with S&P 500 futures and Nasdaq futures. The stock market rally attempt made progress on Thursday, particularly on the Nasdaq, amid some indications that inflation is rising.
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But indications of that inflation-peaking include falling copper and other commodity prices, which also reflects rising recession risks. Commodity -related stocks were hit hard on Thursday.
Vertex Pharmaceuticals (VRTX), UnitedHealth (UNH), Service Today (NOW) and Tesla (TSLA) rival BYD (BYDDF) at Li Auto (Sun) is worth watching, though for a variety of reasons. VRTX stock and Li Auto cleared buy points on Thursday, while BYD stock almost made it. UNH stock is nearing breakout. ServiceNow is far from the old high, but take a positive step.
The stock of Vertex and Li Auto was at IBD 50. UnitedHealth was the IBD Stock Of The Day on Thursday.
FedEx Revenues
After closing, FedEx (FDX) reported fourth-quarter fiscal earnings and earnings that missed analyst views. But the shipping giant has raised a year-round guide to EPS.
FDX stock rose modestly in overnight trading. Shares fell 0.4% to 228.13 on Thursday, hitting resistance to their 200-day moving average in recent days. FedEx stock was out in early May but in a long downtrend.
Dow Jones Futures Today
Dow Jones futures fell 0.15% compared to the fair value. The S&P 500 futures and Nasdaq 100 futures were down 0.1%.
Note that overnight action on Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.
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Stock Market Rally
The stock market rally attempt shook again during the day, but the major indexes eventually closed near the session high.
The Dow Jones Industrial Average rose 0.6% in stock market trading on Thursday. The S&P 500 index climbed 0.95%. The Nasdaq composite jumped 1.6%. The small-cap Russell 2000 advanced 1.1%.
U.S. crude prices retreated 1.8% to $ 104.27 per barrel, prolonging the rapid retreat.
Copper prices have fallen more than 5% to a new 16 -month low. Other metal futures and crop prices have also lost ground. That’s a sign of slower economic growth and perhaps rising inflation.
The 10-year Treasury yield fell 9 basis points to 3.07% after falling 15 basis points on Wednesday, as fears of a recession grew. The benchmark yield has fallen sharply since hitting an 11-year high of 3.48% on June 16th.
Markets will be slightly tighter on pricing by the end of the year than before Fed head Jerome Powell testified before the Senate Banking Committee on Wednesday, followed by the House Financial Services Committee on Thursday. Investors are still highly anticipating another 75-basis-point rate hike at the Fed’s last July meeting. Those possibilities were bolstered on Thursday as Fed Gov. Michelle Bowman that she favored such a move in July, followed by 50-point hikes in subsequent meetings.
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ETFs
Of the best ETFs, the Innovator IBD 50 ETF (FFTY) gave up 2.35%, while the Innovator IBD Breakout Opportunities ETF (BOUT) retreated 1.3%. The iShares Expanded Tech-Software Sector ETF (IGV) jumped 3.6%, with ServiceNow stock a notable holding. VanEck Vectors Semiconductor ETF (SMH) was down 0.5%.
The SPDR S&P Metals & Mining ETF (XME) fell 3.7%, continuing a strong sell-off. The Global X US Infrastructure Development ETF (PAVE) fell 0.7%. The US Global Jets ETF (JETS) is down nearly 1%. The SPDR S&P Homebuilders ETF (XHB) came out 3.6%. The Energy Select SPDR ETF (XLE) fell 3.7% and the Financial Select SPDR ETF (XLF) fell 0.4%. Health Care Select Sector SPDR Fund (XLV) gained 2.4%
Reflecting more speculative story stocks, the ARK Innovation ETF (ARKK) rose 7.1% and ARK Genomics ETF (ARKG) 8.3%. Tesla stock remains the leading holder among Ark Invest ETFs. Ark also owns a small BYD stock stake.
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Stocks To Watch
Vertex stock rose 4.1% to 283.50, clearing 279.23 entries as well as a downward-sloping trendline. But shares have risen sharply since June 14 and especially in the last four days. Ideally, VRTX stock will pause, forming a new hold and buying opportunity. The relative strength line for the Vertex stock is at its highest. The RS line, the blue line in the charts provided, tracks the performance of a stock versus the S&P 500 index.
Among other drugs and biotech stocks showing strength Eli Lilly (LLY), Bristol Myers Squibb (BMY) at Harmony Biosciences (HRMY).
UNH stock climbed 2.1% to 499.81, just above its 50-day line. UnitedHealth stock is on a double-bottom base with a 507.35 buy point. Shares reclaimed their 50-day line on Tuesday, starting three gains in above-average volume. The RS line for UNH stock is at new heights. Meanwhile, Centene (CNC), Humana (HUM) and several other health insurers are showing little strength.
Li Auto stock jumped 6.6% to 39.24 on Thursday, clearing 37.55 buy points from a long, very deep consolidation. But Sun stocks have more than doubled since early May. The shares are 54% above their 50-day moving average. Investors will likely have to wait for Li Auto’s stock to pause, forming a shelf or a new compact base.
Li Auto announced the high-end L9 SUV hybrid on Tuesday, where the automaker expects booming sales after deliveries begin in August. Also, the Chinese government is giving stronger signals that it will extend some EV subsidies over the past 2022.
BYD stock climbed 3.15% to 39.50, nearly crossing a 39.81 buy point from a 48% -deep cup-with-handle base. Ideally, the EV giant will develop a longer handle and the major indices are catching up. BYD should also benefit from EV subsidies and will begin delivering several new models in the coming months.
TSLA stock was down 0.4% to 705.21, falling from the 21-day moving average. Tesla should also get help from China EV’s extended subsidies. But CEO Elon Musk said in a May 31 interview released late Wednesday that Tesla’s new plants in Austin and Berlin were losing billions of dollars.
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ServiceNow stock, like Tesla’s, did not reduce its lows in May through June. On Thursday NOW the stock rose 5.9% to 485.53, exceeding its 21-day and 50-day moving averages. ServiceNow is up 9.5% so far this week, but those gains come in below average volume.
ServiceNow is nowhere near being actionable. It will probably form a bottoming base, even if it is below its 200-day line. However, it’s nice to see a big growth leader showing some signs of life. The RS line for NOW is at its best level since late March.
Market Rally Analysis
The major indexes again rotated up and down intraday, but on Thursday the major indexes closed with decent to strong gains.
Thursday marked the fourth day of attempted stock market rallies for the S&P 500 and Nasdaq composite and third day for the Dow Jones.
Nasdaq delivered a strong price increase, while volume rose slightly compared to the previous session.
However, put Thursday’s action in context. The Nasdaq’s gain hasn’t really stood out amid large price movements in recent weeks and months. The composite closed above its 10-day moving average-the Maginot Line of resistance-the tech-heavy index is still below its 21-day line, with 50-day and 200-day averages. which is higher.
Bearish, Confusing Headwind
Meanwhile, macroeconomic conditions are certainly bearish and volatile.
Powell reiterated, in his two -day testimony to congress, that policymakers will be aggressive in fighting inflation. Although the recession was not “inevitable,” he stressed that a soft landing would be difficult.
Markets will struggle to rally to the Fed’s aggressive raising of rates. But the Fed will not give up until inflation is controlled, which is unlikely to happen until the economy slows sharply or falls into recession.
Needless to say, the Fed’s aggressive, high inflation and recession risks are not an enticing word salad for the bulls.
Mixed Market Action
While key averages have moved higher, there have been some major losers below the surface, as the sector’s ETFs have shown. Fears of the recession are falling oil and other commodity prices, with energy stocks, miners and fertilizer makers selling hard.
Many of Thursday’s winners were beat-up techs like NOW stock and Ark-type names. But they are not actionable. And as soon as they rebound, they could fall faster if the market heads back to recent lows.
Drug stocks and some health insurers look strong, including Vertex and UnitedHealth. Medical are defensive names of growth that should be relatively well underway in more difficult economic times.
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What to do now
The market rally shows some positive action, though many caveats. If you’re leaving the sideline, start with small purchases and gradually increase exposure if the market continues to be good.
While some drugs and medical stocks look interesting, or even flashing buy signals, like Vertex, there aren’t many high-quality stocks in position or set up. Buying a wide market ETF is one way to gain exposure.
Be prepared to quickly back out if the sale continues.
Build your watchlists. Find stocks that are setting up but as well as names that have strong relative strength but need time to adjust their charts.
Read The Big Picture daily to stay in sync 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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