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Dow Jones futures rose solidly early Wednesday, along with S&P 500 futures and Nasdaq futures. The ailing stock market rally lost more ground Tuesday, after Russian President Vladimir Putin recognized breakaway parts of Ukraine as independent and the West imposed targeted sanctions in response.
President Joe Biden, calling Putin’s actions “the beginning of a Russian invasion of Ukraine” limited Russia’s access to Western financing and took aim at Russian oligarchs. The U.K. and European Union also imposed modest penalties. All signaled they are prepared to do far more if Putin invades Ukraine further. Biden also will move more U.S. troops to the Baltic states, formerly part of the Soviet Union and now part of NATO.
Putin, who clearly deems an independent Ukraine as illegitimate, continues to make ominous statements. Russian troops continue to nearly encircle Ukraine.
Still, the stock market rally is barely hanging on, with the major indexes near recent lows.
It was a bad day for retail. Home Depot (HD) and Tempur Sealy (TPX) plunged Tuesday on earnings, with a slew of other retail stocks selling off. Even Macy’s (M) and Dillard’s (DDS) staged negative reversals after strong initial gains on earnings.
Tesla stock sank 4.1% to 821.53 on Tuesday. It’s the first close below its 200-day moving average since last July. Tesla (TSLA) did not quite undercut its Jan. 28 intraday low of 792.01. But the relative strength line for TSLA stock is at the lowest point since mid-October. A decisive break of the 200-day line could be a signal for long-term investors to take additional profits. However, Tesla stock rose modestly early Wednesday, signaling a move back to or above the 200-day.
The RS line for Apple (AAPL) remains near a record high. But AAPL stock is a prime example of an “absolute loser” despite its relative strength. Apple stock fell 1.8% to 164.32 on Tuesday. While it still has a cup-with-handle base with a 176.75 buy point, the handle is starting to look ugly as shares fall far from their 50-day line.
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Palo Alto Networks (PANW), Mosaic (MOS), Diamondback Energy (FANG) and Matador Resources (MTDR) were notable companies reporting earnings late Tuesday.
Palo Alto earnings topped views, with the cybersecurity software firm offering bullish guidance. PANW stock, which had been heading toward its 200-day line, rebounded overnight but is still below the 50-day line.
Mosaic earnings and sales missed views. MOS stock fell early Wednesday, though well off overnight lows, despite a dividend hike and a $1 billion buyback.
Diamondback earnings and Matador earnings topped views. FANG stock and MTDR stock rose slightly Wednesday morning. Both shale plays reversed lower Tuesday amid the broader market sell-off, even with crude oil prices continuing to climb.
Meanwhile, chip-equipment maker Photonics (PLAB) reported 192% EPS growth early Wednesday, beating views. PLAB stock jumped before the open, rebounding from near its 50-day line, clearing short-term resistance and a trend line. It also right around a traditional buy point 20.03. Photonics’ RS line was already at a new high on Tuesday.
Tesla stock is on IBD Leaderboard.
The video embedded in this article covered another tough day for the market rally, while also reviewing HD stock, Planet Fitness (PLNT) and Tesla.
Dow Jones Futures Today
Dow Jones futures rose 0.7% vs. fair value. S&P 500 futures added 0.8%. Nasdaq 100 futures jumped 1.2%.
The 10-year Treasury yield rose 3 basis points to 1.98%. Crude oil futures fell slightly.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
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Stock Market Rally
The stock market rally continued to head toward January lows. The major indexes pared losses briefly as President Biden announced modest sanctions vs. Russia, but faded again into the close.
The Dow Jones Industrial Average fell 1.4% in Tuesday’s stock market trading, with HD stock’s 8.8% drop a major negative for the blue-chip index. The S&P 500 index gave up 1%. The Nasdaq composite sank 1.2%. The small-cap Russell 2000 retreated 1.4%.
The 10-year Treasury yield rose 2 basis points to 1.95%. March crude oil futures rose 1.4% to $92.35 a barrel. April crude rose 1.9% to $91.91.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 1.5%, while the Innovator IBD Breakout Opportunities ETF (BOUT) sank 1.8%. The iShares Expanded Tech-Software Sector ETF (IGV) retreated 0.9%. The VanEck Vectors Semiconductor ETF (SMH) dipped 0.7%.
SPDR S&P Metals & Mining ETF (XME) gave up 0.8% and Global X U.S. Infrastructure Development ETF (PAVE) slumped 1.5%. U.S. Global Jets ETF (JETS) descended 2%. SPDR S&P Homebuilders ETF (XHB) plunged 3.2%, with HD stock a key driver. The Energy Select SPDR ETF (XLE) reversed lower for a 1.6% decline while the Financial Select SPDR ETF (XLF) edged down 0.5%. The Health Care Select Sector SPDR Fund (XLV) dipped 0.25%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) fell 2.2%, hitting a fresh 20-month low intraday. ARK Genomics ETF (ARKG) slid 2.5%. Tesla stock remains the No. 1 holding across Ark Invest’s ETFs.
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Market Rally Analysis
The stock market rally continued to weaken Tuesday. The S&P 500 and Nasdaq composite briefly turned positive in morning trade, but quickly headed lower again.
The major indexes have not yet undercut their Jan. 24 intraday lows, which would definitively end the market rally and mark a new leg in a correction. But they continue to move toward that level. The S&P 500 had its worst close in months, joining the Dow Jones.
Is the stock market close to pricing in the Russia-Ukraine conflict? That’s hard to do when investors don’t know what to price in. Will Putin halt his aggression, for now, with the West imposing modest sanctions? Or will Russian troops sweep into far more of Ukraine, triggering massive economic penalties that could roil global markets and supply chains. This wave of uncertainty could end quickly, or last for days or weeks.
Even if the market stops falling from here, that doesn’t mean it’ll be a straight shot higher. The Federal Reserve is about to embark on a major tightening cycle. On a technical basis, the major indexes face a lot of key resistance levels and could end up in choppy trading for an extended period.
That wouldn’t be the worst outcome, because very few stocks look attractive right now.
Commodity stocks remain an area of strength. But even with oil and natural gas prices continuing to climb, energy stocks reversed lower on Tuesday, including FANG stock and Matador.
Travel stocks are holding up better than most, but still have pulled back over the past few sessions. The same is true of Apple stock.
Growth names generally look terrible, with highly valued plays such as Tesla stock struggling.
But as Home Depot stock and other retailers showed, low price-to-earnings ratios are no panacea. O’Reilly Automotive (ORLY) should fare well amid the new-car shortage, and recently reported strong earnings. But ORLY stock fell 3.7% on Tuesday, dropping below its 50-day line.
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What To Do Now
It’s still technically a market rally, but one under heavy pressure. Clearly, the market needs to show real strength — not just a one day bounce — before investors can have any confidence that the trend will continue.
The risks are heavily tilted to the downside. If the major indexes break below their Jan. 24 lows, there’s no clear support. Any upside move could quickly run out of steam, for the broader market, sector or individual stock.
If you have some stocks that are working, or have huge long-term gains, you can hold on to those if you want. But there’s no reason to be anything more than modestly exposed, and plenty of reasons to be in cash.
Look for stocks with strong relative strength. Those could be big winners in the next strong uptrend, so put them on your watchlist. But in a weak market, relative strength winners are usually 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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