Dow Jones Futures Fall As ‘Rapid’ Fed Shift Hits Market Rally; Elon Musk Steals Trump’s Thunder

Dow Jones futures fell solidly early Wednesday, along with S&P 500 futures and Nasdaq futures, while Treasury yields continued to rise sharply. The stock market rally retreated and Treasury yields jumped Tuesday as a top Fed policymaker called for a “rapid” reduction in the Federal Reserve’s massive balance sheet.

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Solar power firm SolarEdge Technologies (SEDG) and uranium ETFs North Shore Global Uranium (URNM) and Global X Uranium (URA) flashed buy signals Tuesday morning, but pared gains or reversed lower as broader markets retreated.

UnitedHealth (UNH) and Eli Lilly (LLY) are rising within buy zones.

As for megacaps, Apple stock, Tesla (TSLA), Microsoft (MSFT) and Google parent Alphabet (GOOGL) all retreated Tuesday, though the charts look fine. Tesla stock fell back from a trendline entry, but could use a decent pause after a rapid run. Apple (AAPL) technically dipped below a buy point, but now has a proper handle, offering a new operative buy point. Microsoft and Google stock also now have handles and new buy points on their daily charts.

Tesla, Microsoft and LLY stock are on IBD Leaderboard. Microsoft stock and Google are IBD Long-Term Leaders. TSLA stock, Microsoft and Google are on the IBD 50. Uranium ETF URNM was the IBD Stock Of The Day. Google was the IBD 50 stock to watch.

The video embedded in this article discusses the market rally retreat and analyzes the URNM ETF, Google and LLY stock.

Musk Joins Twitter Board, Steals Trump Thunder

Meanwhile, Twitter (TWTR) gapped above its 200-day line Tuesday morning to 54.57 on news that Tesla CEO Elon Musk will join the social network’s board. TWTR pared gains to up 2% at 50.98. Twitter stock surged 27% on Monday as Musk disclosed a 9.2% stake, originally described as “passive.”

Musk’s Twitter move appears to be stealing Donald Trump’s thunder as his Truth Social site faces challenges. Digital World Acceptance Corp. (DWAC), the SPAC merger partner with Truth Social parent Trump Media and Entertainment, plunged 16% to 48 on Tuesday, falling intraday to the lowest point since early December. DWAC stock skidded 10% on Monday.

Trump’s Truth Social network has been beset with technical problems, with key tech executives leaving Monday. App downloads have tumbled. Also, Former President Trump hasn’t been posting on his own site, removing Truth Social’s key value-add vs. Twitter and Facebook (FB).

All told, DWAC stock has lost more than half its value since hitting 101.87 on March 2.

TWTR and DWAC stock fell modestly early Wednesday.

Fed’s Brainard Wants ‘Rapid’ Balance Sheet Cut

Fed Gov. Lael Brainard said Tuesday that she wants the central bank to start to reduce its massive balance sheet soon and at a “rapid pace.” Brainard, who’s been nominated to become the Fed Vice Chair, added, “I expect the balance sheet to shrink considerably more rapidly than in the previous recovery.”

Fed chief Jerome Powell has signaled for some time that policymakers would start to reduce its balance sheet, but Brainard’s comments signaled that it’ll likely come soon.

San Francisco Fed President Mary Daly also signaled support for aggressive Fed action. Both had been as doves, but in 2022 there are no Fed doves. On top of the balance sheet cuts, markets have been pricing in expectations for half-point hikes at each of the next three meetings.

On Tuesday, Fed Gov. Esther George said a 50-basis point hike is an option for the early May meeting.

Treasury yields surged on the latest hawkish Fed signals, with the 10-year yield moving back above the two-year yield.

On Wednesday, the Federal Reserve will release minutes from its March policy meeting.

Dow Jones Futures Today

Dow Jones futures fell 0.7% vs. fair value. S&P 500 futures sank 0.9% and Nasdaq 100 futures slumped 1.5%.

The Dow Jones is likely to undercut its 21-day moving average and test its 50-day line. The S&P 500 could test its 21-day and 200-day lines, with the Nasdaq moving back toward its 21-day line.

The 10-year Treasury yield jumped 6 basis points to 2.62%, hitting three-year highs.

U.S. crude oil prices rose just over 1%.

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 retreated Tuesday, closing near session lows. The Dow Jones Industrial Average sank 0.8% in Tuesday’s stock market trading. The S&P 500 index retreated 1.3%. The Nasdaq composite tumbled 2.3%. The small-cap Russell 2000 also lost 2.3%.

U.S. crude oil prices opened higher but reversed lower for a 1.3% decline to $101.96 a barrel. Natural gas futures jumped nearly 6%. The European Union is moving toward banning Russian coal imports, but isn’t going after Russian crude or natural gas.

The 10-year Treasury yield rose 14 basis points to 2.56% on Brainard’s hawkish balance sheet comments. The two-year yield popped 7 basis points to 2.5%, but that means the yield curve is no longer inverted.

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) skidded 3.75%, while the Innovator IBD Breakout Opportunities ETF (BOUT) fell 1.7%. The iShares Expanded Tech-Software Sector ETF (IGV) gave up 2.5%, with Microsoft stock a major IGV holding. The VanEck Vectors Semiconductor ETF (SMH) sold off 4.3%.

SPDR S&P Metals & Mining ETF (XME) reversed lower for a 2.4% decline. The Global X U.S. Infrastructure Development ETF (PAVE) gave up 1.8%. U.S. Global Jets ETF (JETS) descended 1.1%. SPDR S&P Homebuilders ETF (XHB) lost 2.1%. The Energy Select SPDR ETF (XLE) turned lower for a 1.6% decline. The Financial Select SPDR ETF (XLF) edged down 0.6%. The Health Care Select Sector SPDR Fund (XLV) inched up 0.2%.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) tumbled 5.6%, back below its 50-day line. ARK Genomics ETF (ARKG) sold off 5.3%, just holding the 50-day. Tesla stock remains the No. 1 holding across Ark Invest’s ETFs.

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Apple Stock

Apple stock fell 1.9% to 175.06, dropping back below a 176.75 double-bottom buy point. But AAPL stock now has formed a handle on a daily chart, giving it a 179.71 buy point. Strictly speaking, the iPhone giant had a handle on a weekly chart after last week, but it was wafer thin. With the daily handle carved, investors should probably focus on that entry.

The relative strength line for Apple stock is right at a new high.

Shares sank more than 1% before the opening bell.

Microsoft Stock

MSFT stock sank 1.3% to 310.88. The software and cloud-computing giant now has a handle with a 316.05 buy point. The midpoint of the handle is just above the midpoint of the base, so there is some overhead resistance.

Microsoft stock fell 2% in premarket action.

Google Stock

Google stock slipped 1.7% to 2,811.82. That gives GOOGL stock a handle on its cup base on a daily chart with a 2,875.95 buy point. The internet giant did have a handle on its weekly chart with the same entry, much like Apple, though Google’s was a little more substantial. The RS line for Google stock isn’t far from highs, but has been moving sideways since late July.

GOOGL stock retreated 2% before the open.

SEDG Stock

SolarEdge stock rose as high as 344.61, but reversed to trade down 2% to 328.69. SEDG stock intraday cleared a 335.67 cup-with-handle buy point once again, according to MarketSmith. There’s no doubt that the solar power products firm has some big intraday swings. Investors could consider starting a position in SEDG stock if it once again finds support at its 21-day moving average.

Shares fell 2% Wednesday morning.

Tesla Stock

TSLA stock retreated 4.7% to 1,091.26 on Tuesday after jumping 5.6% on Monday following record Q1 delivery figures. Tesla stock has a 1,208.10 cup-base buy point. Intraday, shares hit 1,152.87, a three-month high and just crossing a shallow trendline. After running up sharply since March 14, Tesla stock could use a real pause, with a substantial handle that actually shakes out some weak holders.

Tesla Shanghai has been closed since March 28, as the city goes on an intense lockdown as Covid cases soar there. That will likely affect production and especially deliveries more in Q2 than in Q1. While the Berlin and Austin are building Model Y crossovers now, output is relatively low.

TSLA stock fell more than 2% Wednesday morning.

Market Rally Analysis

The stock market rally pulled back Tuesday, with hefty losses among tech and small-cap names.

The major indexes appear to be forming handles after a big run-up. The Dow, S&P 500 and Nasdaq seem to be acting normally, so far, but that could quickly change. If the S&P 500 and Nasdaq decisively under their 21-day moving averages, that would be more concerning. The Dow Jones is slightly above its 21-day line, with the 50-day just below that.

But there is notable weakness beneath the surface.

Tech stocks are looking weak. Yes, Apple stock is setting up near record highs. Microsoft and GOOGL stock are close to buy points, though both haven’t made any progress over the last several months.

Meanwhile, chip stocks have been plunging amid reports of weaker demand for PCs and consumer electronics. Software and other highly valued growth names are getting hammered due to rising Treasury yields. Tesla is one of the only triple-digit P-E stocks that has been thriving, a distinction that’s both impressive and worrisome.

Shipping stocks also are weak. Truck, train and other “land” shippers continue to sell off, while oceangoing container and dry bulk shippers also are now also losing ground.

Strong Sectors

On the upside, energy and commodities continue to do well, whether it’s oil and gas plays, coal miners, solar stocks or uranium ETFs. But they are prone to big intraday swings and reversals from highs, as URNM and SEDG stock showed Tuesday.

Defense stocks such as Lockheed Martin (LMT) are consolidating after spiking early on in Russia’s Ukraine invasion.

Medical stocks are quietly doing very well, offering defensive growth, often with low-to-modest P-E ratios. Those include health insurers such as UNH stock as well as drugmakers like LLY stock. Edwards Lifesciences (EW) and Shockwave Medical (SWAV) are working on the right side of bases. AbbVie (ABBV) has steadily advanced for months, though it’s well extended.

Insurance stocks such as AIG (AIG) are hanging around buy points. Insurers can do well in a rising rate environment and aren’t particularly concerned about the yield curve.

Property storage REITs are doing well, despite the rising rates. Warehouse operator Prologis (PLD) is in a buy zone. Extra Space Storage (EXR) is among those carving possible handles on new bases.

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What To Do Now

The stock market rally is not showing distress on the major indexes. But investors should focus on what’s working, not sectors that they find especially appealing. The energy and commodity spaces continue to do well. Medicals from a variety of groups are faring well.

If you already have significant exposure to those areas, you may just want to sit tight.

If you’re in a number of growth stocks, you should probably be cutting back. Simply cutting losers or exiting winners that are giving up gains may bring down your growth exposure without any overt portfolio management.

Overall, investors probably should take a cautious approach. See how the market pullback plays out before taking big new positions. Keep refining your watchlists. If the market rally regains momentum, you can take advantage with the best stocks. If the market rally begins to seriously falter, you’ll be ready to pare your modest exposure further.

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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