Dow Jones Futures: Techs Lead Stock Market Rebound; Investors See End To Fed Rate Hikes

Dow Jones futures edged lower overnight, along with S&P 500 futures and Nasdaq futures. The stock market closed mixed Tuesday, but techs led a strong recovery even as recession fears slammed Treasury yields and commodity prices.

The Dow Jones closed lower, but well off lows, while S&P 500 eked out a small gain. The Nasdaq had a strong advance, with aggressive growth names such as Roblox (RBLX) and Datadog (DDOG) rebounding above their 50-day lines. Apple (AAPL), Amazon.com (AMZN) and Google parent Alphabet (GOOGL) reclaimed a key short-term level.

Meanwhile, crude oil prices plunged below $100 a barrel. Gasoline, copper and wheat futures fell sharply, extending significant losses over the past few weeks.

The Treasury yield curve inverted between the two-year and 10-year notes, a notable recession signal. Markets still see aggressive Federal Reserve tightening at the next two meetings, but also expect rate hikes ending this year.

Dollar Tree (DLTR), Halozyme Therapeutics (HALO) and PRVA stock showed bullish action Tuesday. Meanwhile, Northrop Grumman (NOC) and UnitedHealth (UNH) fell but found key support.

NOC stock and UnitedHealth are on IBD Leaderboard. DLTR stock is on SwingTrader. Google stock is on IBD Long-Term Leaders. UNH stock is on the IBD 50. Privia Health (PRVA) was Tuesday’s IBD Stock Of The Day.

Dow Jones Futures Today

Dow Jones futures fell 0.2% vs. fair value, swinging between slim gains and losses. S&P 500 futures dipped 0.15% and Nasdaq 100 futures lost 0.1%.

U.S. crude oil futures rose more than 1%, back above $100 a barrel.

The 10-year Treasury yield edged up 1 basis point to 2.82%. The two-year yield rose 1 basis point to 2.83%, with the two-to-10 yield curve slightly inverted.

Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.

Stock Market Rally

The stock market rally sold off Tuesday morning, but rebounded to end mixed, at session highs.

The Dow Jones Industrial Average fell 0.4% Tuesday’s stock market trading. The S&P 500 index climbed 0.2%. The Nasdaq composite jumped 1.75%. The small-cap Russell 2000 bounced 0.8%.

Apple stock, a Dow Jones, S&P 500 and Nasdaq giant, rose 1.9%, above its 21-day moving average. Google stock popped 4.2% and Amazon 3.6%, also retaking the 21-day line and closing in on their long-sliding 50-day lines. All three megacap techs are far from being actionable.

Recession fears are roiling financial markets, especially commodities and bonds.

U.S. crude oil prices dived 8.2% to $99.50 a barrel after already retreating substantially from early June peaks. Gasoline futures plunged 9%, continuing a rapid decline. Prices at the pump have fallen 20 straight days, a trend that should continue.

Copper futures tumbled more than 4%, extending a long sell-off. Crop futures are coming down sharply.

The 10-year Treasury yield dived 16 basis points to 2.81%. The two-year yield fell 2 basis points to 2.82%, meaning the yield curve is now slightly inverted.

Ed Yardeni of Yardeni Research has raised his odds for a recession, albeit shallow and short-lived, to 55% from 45%.

latest batch of leading economic indicators suggests weaker coincident indicators to come. As a result, we’re raising our odds of a shallow, short-lived recession in the US economy to 55% (from 45%). That makes a recession now our base-case scenario from which we derive our earnings and stock market forecasts. …

Despite rising recession risks — and the prospect of significantly lower inflation in the coming months — the Fed is still expected to hike rates by 75 basis points at the late July meeting and 50 basis points at the September meetings. However, markets see only quarter-point hikes in the last two Fed meetings of the year, and now see no move at the February 2023.

ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) edged up 0.15%, while the Innovator IBD Breakout Opportunities ETF (BOUT) inched 1 cent higher. The iShares Expanded Tech-Software Sector ETF (IGV) gained 2.6%. The VanEck Vectors Semiconductor ETF (SMH) rose 0.6%.

SPDR S&P Metals & Mining ETF (XME) dived 4.9% and the Global X U.S. Infrastructure Development ETF (PAVE) slid 1.1%. U.S. Global Jets ETF (JETS) ascended 0.2%. SPDR S&P Homebuilders ETF (XHB) gained 2.5%. The Energy Select SPDR ETF (XLE) tumbled 4% and the Financial Select SPDR ETF (XLF) dipped 0.3%. The Health Care Select Sector SPDR Fund (XLV) sank 0.6%, with UNH stock a major holding.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) leapt 9.1%, above its 50-day line. ARK Genomics ETF (ARKG), which closed Friday just above its 50-day, popped 8.2% to a two-month high. Ark Invest does own some RBLX stock in its ETFs.

Stocks To Watch

Dollar Tree stock rose 5.5% to 164.84 in above-average volume, rebounding from the 50-day line and breaking a trendline from the late April peak, offering an early entry. DLTR stock has a cup-with-handle base with an official buy point of 166.45. The relative strength line is already at a new high, reflecting Dollar Tree’s outperformance vs. the S&P 500 index. Archrival Dollar General (DG) is buy range from its own cup-with-handle base.

Privia Health stock opened lower, then rebounded from the 21-day line to move higher. PRVA stock popped 7.4% to 31.04 in huge volume, briefly hitting an 11-month high of 33.88. The self-described Uber of doctor’s offices is now slightly extended from a 29.07 cup-base buy point. But investors could treat its recent pause above the buy point as a high handle with a 30.25 buy point. That high handle could be viewed as a regular handle for a longer consolidation going back to last November.

Halozyme stock gained 4.2% to 46.33, rebounding from its 50-day line and breaking a short, but very-steep downtrend. That could offer an early entry into HALO stock, which has a flat base with a 48.68 buy point on a weekly MarketSmith chart. That flat base could viewed as a handle in a base going back to February 2021. The RS line for Halozyme stock is at a new high.

Meanwhile, Northrop stock fell 4.5% to 464.36, though it did rebound from below the 50-day line intraday. Still, NOC stock nearly wiped out last week’s 4.9% gain that triggered buy signals.

UnitedHealth stock sank 2.35% to 505.24, but closed in the upper half of its range as it found support at its 50-day line. While below its 507.35 double-bottom base buy point, UNH stock isn’t flashing any sell signals yet. UnitedHealth could be working on a handle now.

Market Rally Analysis

The major indexes fell sharply soon after Tuesday’s open, but rebounded, in differing degrees.

The Dow Jones closed lower, though well off its worst levels. The S&P 500 turned positive shortly before the closing bell. The Nasdaq roared back for solid gains, with Apple stock rising while DDOG stock, Roblox and Ark-type stocks ran up sharply, with tumbling Treasury yields likely a big driver.

Datadog jumped 7.25% to above its 50-day line. Roblox stock leapt 14% in heavy volume to its best level since late April. But those stocks are well off highs.

A stock market rally is still in force, though it’s been under pressure for the past week.

Apple, Google and Amazon stock reclaimed their 21-day lines on Tuesday. All of the major indexes are still below it, though the Nasdaq is close. The 50-day line, early June peaks and many other resistance points lie above that short-term level.

Beyond the risks of another leg down in the 2022 bear market, seemingly good stocks will flash buy signals, then quickly reverse lower.

Northrop and UNH stock fall into that camp, though they may not be finished. It certainly wasn’t a good day for defense makers and health insurers.

Despite health insurers’ tough day, medicals remain the leading sector.

Ideally, the stock market would move sideways for an extended time. That would allow more stocks to set up bases, while investors would get more clarity on the Federal Reserve and the economy. But the market is going to do what it’s going to do.

What To Do Now

Tuesday’s stock market action was relatively positive, given the recession fears raging in bond and commodity pits. But the market rally is under pressure. There are few good stocks to buy or setting up, and actionable stocks are prone to sudden reversals.

Investors who buy, say, a biotech, should keep the position small and be ready to take quick profits and keep any losses small.

When a sustained market rally takes hold, investors will have plenty of opportunities to ramp up exposure and letting winners run. For now the focus should be on preparing for that next bull market.