Dow Jones futures fell sharply early Wednesday, along with S&P 500 and Nasdaq futures, as recession fears grew with Fed Chief Jerome Powell due to testify before Congress on Wednesday morning .
The attempted stock market rally had a strong session on Tuesday. But it’s still an attempt to rally in a bear market.
Energy Cheniere (LNG), Exxon Mobil (XOM), Eli Lily (THERE IS), General dollar (DG), You’re here (TSLA)rival Li-Auto (LI), UnitedHealth (UNH) and Northrop Grumman (NOC) showed a strong positive action, with lines of force relative to or near the tops.
But few quality stocks are in position right now. This is just one of many reasons to stay away. While an attempted rally is underway, it is not yet a confirmed uptrend.
Northrop and Eli Lilly stocks are on the IBD ranking. Li Auto and Eli Lilly shares are on the IBD 50. LLY shares are also on the IBD Big Cap 20.
Dow Jones Futures Today
Dow Jones futures fell 1.15% from fair value. S&P 500 futures lost 1.4% and Nasdaq 100 futures fell 1.6%.
The 10-year Treasury yield fell 8 basis points to 3.23%.
US crude oil prices fell 5%. President Joe Biden on Wednesday called on Congress to suspend the federal gasoline tax of 18.4 cents per gallon for three months to provide temporary relief at the pump.
Copper prices fell more than 3%.
Remember that overnight action on futures contracts on Dow and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Fed chief Powell testifies
Fed Chief Powell testifies on monetary policy before the Senate Banking Committee on Wednesday morning. Powell will appear before the House Financial Services Committee on Thursday.
It’s unclear if Powell will break new ground from last week. On June 15, the Federal Reserve raised interest rates by 75 basis points, with the Fed chief saying 50 basis points or 75 basis points were on the table for the policy meeting in late July. Markets almost fully priced in another three-quarter point rate hike.
Fed Chief Powell testifies at 9:30 a.m. ET, just at the opening bell, although the Federal Reserve may release its prepared remarks sooner.
More and more companies on Wall Street over the past two days are now predicting that the United States or the world will fall into a recession, or put the odds at practically 50-50.
Join the experts at IBD as they analyze actionable stocks in the stock market rally on IBD Live
Stock Market Rally Tuesday
The stock market rally attempt had a strong session. The Dow Jones Industrial Average climbed 2.15% in trading on Tuesday. The S&P 500 index rose 2.45%. Tesla, Exxon and UNH stocks were among the best performers in the S&P 500, with the latter two names also being Dow giants. The Nasdaq composite rebounded 2.5%. The small cap Russell 2000 rose 1.8%.
Crude oil futures expiring in July rose 1% to $110.65 a barrel, above intraday highs. August crude gained 1.4% to $109.52.
The 10-year Treasury yield rose 7 basis points to 3.31%.
Stock market forecast for the next six months
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) gained 3.3%, while the Innovator IBD Breakout Opportunities ETF (BOUT) gained 2%. The iShares Expanded Tech-Software Sector ETF (IGV) gained 1.9%. The VanEck Vectors Semiconductor (SMH) ETF rose 2.8%.
The SPDR S&P Metals & Mining ETF (XME) rose 1.6% and the Global X US Infrastructure Development ETF (PAVE) rose 1.1%. The US Global Jets ETF (JETS) edged up 0.8%. The SPDR S&P Homebuilders ETF (XHB) rose 0.4%. The SPDR Energy Select ETF (XLE) rebounded 4%, with XOM stocks making up a large portion, and the SPDR Financial Select ETF (XLF) rose 1.5%. SPDR’s healthcare sector fund (XLV) rose 2.3%, with UNH stock leading and Eli Lilly also a notable component.
Reflecting more speculative stocks, ARK Innovation ETF (ARKK) rose 4.4% and ARK Genomics ETF (ARKG) rose 3%. Tesla stock remains a major holding in Ark Invest ETFs.
Five best Chinese stocks to watch now
Cheniere Energy’s stock rose 5.5% to 132.95, approaching its 50-day moving average. On Friday, LNG stock reduced several months of trading, but then rose in volume. The LNG game is working on a consolidation with a buy point of 150.10, although there may be some early entries. Several other LNG plays also bounced back towards their 50-day line.
Exxon stock jumped 6.3% to 91.51, reclaiming its 50-day moving average and a arguably still valid buy point of 89.90 cup with handle. XOM stock hit 105.57 on June 8 but quickly gave up recent gains, plunging 14% in the past week.
Ideally, Exxon Mobil would move sideways and start forming a new consolidation before making a big push.
On Tuesday, Exxon Mobil joined a $29 billion Qatari natural gas project. Other partners include Conoco Phillips (COP), Eni (E) and TotalEnergies (TTE). Meanwhile, Credit Suisse raised its rating on Exxon stock to Outperform with a price target of $125.
Eli Lilly shares climbed 2.2% to 297.35, closing a hair below the 50-day line. A prior buy point of 314.10 from a base flat/basis to base structure is no longer valid. LLY stock is working on further consolidation. A break above a short descending trend line would offer an entry around 306.
Bristol Myers Squibb (BMY), Vertex Pharmaceuticals (VRTX) and Harmony Biosciences (HRMY) show a positive action.
Automatic Li Stock
LI stock jumped 7.85 to 35.75 on Wednesday, the highest close since January 2021. Li Auto stock nearly broke a buy point of 37.55 after consolidating 55%. Ideally, LI stock would form a handle, the longer the better, digesting its huge recent gains.
Chinese Li Auto on Tuesday unveiled the L9, a new hybrid SUV. It’s more expensive than the Li One, which is already in the premium segment.
Nio (NIO) jumped 9.2% and Xpeng (XPEV) 6.8%, as both continue to bounce above their 50-day line but below their 200-day averages. EV and battery giant BYD (BYDDF) gained 3.2% to 38.60, working a buy point of 39.81 cup with handle on a weekly chart.
Tesla stock jumped 9.35% to 711.11, just regaining its 21-day moving average in high volume. But the 50 and 200 day lines are major hurdles. TSLA stock nearly broke its late May lows last week, but didn’t.
Tesla vs. BYD: Which electric giant is the best buy?
NOC stock rose 4.5% to 463.77, reclaiming its 21- and 50-day lines. Northrop shares have fallen sharply in the previous two weeks, failing a cup-with-handle breakout. A new consolidation could start to form. A decisive move past the 50-day line could offer early entry.
UNH stock jumped 6.25% to 480.32, bouncing above the 200-day moving average. Stocks closed just around a descending trend line. Any strength from this point could offer a quick entry into UnitedHealth stock. However, investors may view 507.35 as a double-bottom buy point, which would also push UNH stock above the 50-day line.
General action in dollars
DG stock gained 3.5% to 238.97, returning above the 50-day line and approaching a buy point of 240.07 cup with handle, according to MarketSmith analysis. Dollar General shares were arguably already exploitable after breaking a downtrend line on Tuesday. The 240 price level aligns with the DG stock highs in August and January.
Market rally analysis
Major indices rebounded strongly on Tuesday, although volume was significantly lighter than Friday.
After dropping last week to their lowest levels since late 2020, the Dow Jones, S&P 500 and Nasdaq composite was likely to rebound. All major indices are still below their 10-day moving averages. The 50-day line is a much higher hurdle, with the 200-day average and all-time highs far in the distance.
The best percentage gains for indexes in history are in bear markets or corrections, so Tuesday’s action by itself was not that significant.
The S&P 500 composite and Nasdaq are on day two of a stock market rally attempt, while the Dow Jones is only on day one.
If the attempted rally continues, investors may look for a follow-up day later this week to confirm the new uptrend. But this bear market has seen several confirmed market rallies that run out of steam immediately or within weeks.
Few stocks are in position with the market selling so hard in 2022.
Energy stocks rebounded from huge losses last week. Some names like Exxon Mobil and LNG stock look interesting.
Chinese electric vehicle names have been the leaders for the past few weeks, but Li Auto could probably use an extended break.
Ultimately, the stock market could struggle with the Fed raising rates aggressively and with high recession risks. This is unlikely to change until inflation shows significant declines, which will likely take several months at best.
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What to do now
An attempted market rally is trying to get started, but has yet to prove sustainable. Even if there is a trailing day soon, investors should be careful before re-entering the market, gradually adding exposure and being quick to pull back.
If this attempted rally turns into a sustained uptrend that lasts for weeks, months, or years, there will be plenty of opportunities to invest heavily.
At this time, create your watchlists for stocks with strong relative strength, especially those holding or regaining key moving averages.
Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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