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Dow Jones Futures: Inflation Report, Federal Reserve are major tests for market rally

Market Recovery Expected CPI Inflation Report, Federal Reserve;  Set up 5 camps
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Dow Jones futures open Sunday night, along with S&P 500 futures and Nasdaq futures, with attention focused squarely on the CPI inflation report and the Federal Reserve.




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The stock market rally tailed off last week, with major indices continuing their trend of making new highs but then falling. It’s a challenging environment for buying stocks.

In the coming week, investors will receive a double shot of major economic news. On Tuesday, the Labor Department will release its November CPI inflation report. On Wednesday afternoon, the Federal Reserve is set to hike rates again, with Fed Chair Jerome Powell signaling further tightening in early 2023.

That could be a catalyst for large market gains or losses, or choppy sideways movement could continue. Investors should probably await the inflation report and Fed news before increasing their exposure.

Breakout failures or deflagration are common, with DXCM shares falling Friday after briefly clearing a buy point Thursday following FDA clearance.

But here are five stocks to keep an eye on: Dow Jones giants Caterpillar (CAT) and Goldman Sachs (GS), Sanmina (SANM), McKesson (McK) and MercadoLibre (MELI). To be clear, none of these stocks are actionable, with the MELI stock in particular requiring some work.

Microsoft (MSFT) the megacaps are doing relatively well, with Apple (AAPL) below its 50-day moving average and Tesla (TSLA) trying to avoid new bear market lows. However, MSFT stock remains well below its 200-day moving average and has not made much progress over the past month.

The video embedded in the article has thoroughly reviewed and analyzed what is happening in the market Dexcom (DXCM), MercadoLibre and CAT shares.


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CPI inflation and Fed meeting

Early Tuesday, the Labor Department will release the consumer price index for November. Headline and core CPI inflation rates are likely to cool off over the next few months, if only as comparisons become tougher. But service prices have been stubbornly strong.

The Federal Reserve wants to see a more significant decline in services inflation and wage growth before halting rate hikes. The Fed is expected to hike interest rates by 50 basis points to between 4.25% and 4.5% by 2pm ET, ending a series of four 75 basis point hikes. Investors will want some clues about the February meeting and how high the Fed funds rate might eventually go. Markets are currently pricing in another half-point Fed rate hike in February, although there is a good chance of a quarter-point move.

Fed Chair Powell’s comments at 2:30 p.m. ET, along with the CPI inflation report, could set the tone for Fed policy heading into 2023.

Powell and several policymakers have signaled that a recession may be needed to bring inflation under control.

Dow Jones futures today

Dow Jones futures open at 6:00 p.m. ET on Sunday, along with S&P 500 futures and Nasdaq 100 futures.

Think about the night action in Dow futures and elsewhere not necessarily translated into actual trading in the next regular time stock market Meeting.


Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live


stock market rally

The stock market rally has seen significant declines for key indices over the past week.

The Dow Jones Industrial Average is down 2.8% over the past week stock exchange trading. The S&P 500 Index lost 3.4%. The Nasdaq Composite plunged 4%. Small-cap Russell 2000 plunged 5.1%.

The 10-year government bond yield rose 6 basis points to 3.57%, rebounding from 3.4% mid-week.

US crude futures fell 11% last week to $71.02 a barrel, while gasoline futures fell 9.8%. Both touched 2022 lows. Natural gas prices fell 0.6%.

ETFs

Among the top growth ETFs is the iShares Expanded Tech-Software Sector ETF (IGV) tumbled 4.6% with Microsoft shares taking a prominent position. The VanEck Vectors Semiconductor ETF (SMH) declined by 1.7%.

The ARK Innovation ETF (ARKK) fell 9.2% last week and ARK Genomics ETF (ARKG) 8.1%. TSLA shares are a massive holding in Ark Invest’s ETFs.

SPDR S&P Metals & Mining ETF (XME) fell 6.4% last week. The Global X US Infrastructure Development ETF (PAVE) dropped 2.85%. US Global Jets ETF (JETS) declined by 3.3%. SPDR S&P Homebuilders ETF (XHB) fell 2%. The Energy Select SPDR ETF (XL) fell 8.45%, decisively breaking its 50-day moving average. The Financial Select SPDR ETF (XLF) declined by 3.9%. The SPDR Fund for Selected Healthcare Sectors (XLV) fell 1.3% after rising for eight of the previous nine weeks.


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megacap stocks

Apple stock fell 3.8% over the past week, falling below that key level on Tuesday and finding resistance there on Friday. Bad iPhone production news may be priced in and AAPL stock is recovering.

Shares in Dow tech titan Microsoft are also down 3.8% but held support at the 21-day moving average, slightly above a 50-day straight up price. But it is well below the 200-day moving average. MSFT stock is essentially flat vs. a month ago, similar to the S&P 500 and Nasdaq.

Tesla stock plunged 8.1% over the past week, even with a 3.2% plunge on Friday. TSLA stock bounces above recent bear market lows. Tesla last week announced new stimulus plans for China, with widespread media reports that the Shanghai plant will significantly throttle production over the next few weeks, even halting production of the Model Y.


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stocks to look at

Caterpillar shares fell 3.7% last week to 227.29, undercutting the 21-day moving average. The withdrawal could lead to a constructive market shakeout. CAT warehouse has a purchase point at 238 or 239.95 from a long cup base. In another week, the Dow heavy equipment giant could have one flat base with that 239.95 buy point. A slightly longer pause would allow the rapidly rising 50-day moving average to close the gap on CAT stock.

Goldman shares fell 5.6% to 359.14 over the last week, overcoming a breakout of a cup bottom with a buy point of 358.72 before rising slightly above it. A solid recovery from here could provide fresh entry, especially if the 50-day or 10-week moving average catches up. On a weekly chart, GS stock has a 13-month period Cup with handle basewith a buy point of 389.68 accordingly MarketSmith Analysis. The past week has now created more depth on this hold, which could also become a flat base in a week’s time.

Sanmina shares fell 7.3% to 62.48 last week. SANM stock had firmly consolidated in the profit-taking zone after a breakout in October from a cup base. Stocks could start a pullback to the 50-day/10-week moving average and present a buying opportunity, although the weekly decline was abrupt. SANM camp is also working on a possible flat base.

McKesson shares fell 4% last week to 371.37, falling just below the 50-day and 10-week moving average on Friday. MCK stock is working on a new consolidation after a strong sell-off on November 11th. 10-11, which slammed many defensive medical stocks. A move above the 389.45 Dec 2 high could offer an early entry still close to the moving averages.

MELI stock was down 5.1% to 896.48, its fourth straight weekly decline. The Latin American e-commerce and payments giant has a buy point of 1,095.44, with a trendline entry around 1,025. An aggressive entry could be a decisive recapture of MELI stock’s moving averages, with the Dec 2 high of 957 as that trigger. While MercadoLibre stock is trending lower, the weekly losses are on lower volume with some relatively strong positive closes.

Analysis of the market rally

A week ago, the stock market rally hit new highs, with the S&P 500 breaking above its 200-day moving average for the first time in months. But as investors reassessed Fed Chair Powell’s jobs report and comments, major indices fell.

The S&P 500 fell below its 200-day moving average while the Nasdaq tested its 50-day moving average. Both met resistance at the 21-day moving average at the end of the week. The Russell 2000 plunged below its 200-day and 21-day moving average and came straight onto its 50-day moving average, just undercutting its 10-week moving average.

The rally-leading Dow holds support for its 21st day.

The S&P 500 is basically where it was after the 11th 10 when a tame October CPI inflation report boosted stocks. Nasdaq and Russell 2000 are back to early November levels but also to late October highs.

If you had to come up with a scenario to entice investors to repeatedly overspend, this current uptrend could be the blueprint: A market rally with a few big daily gains, followed by multiple session pullbacks.

It’s still a confirmed market rally. However, further price losses would be worrying if, for example, the Nasdaq or, in particular, the S&P 500 were to break through its 50-day moving average.

Tuesday’s November CPI inflation report and Wednesday’s Fed meeting announcement and Powell’s comments could provide a catalyst for a sustained market rally or decisive sell-off. But they could also trigger another major market bang that seems crucial, only to be followed by another pullback.


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What now

Investors should be wary of adding exposure until the CPI inflation report and Fed meeting are in the rearview mirror. Even as markets jump on inflation data and Fed Chair Powell’s comments, investors should be selective about new purchases if major indices simply fall back in the next few sessions.

At some point, a sustained, steady market rally will begin. When that happens, buying opportunities will abound.

So get your shopping list ready for the stock market holidays. A large number of stocks from different sectors are under construction or about to be.

Read The big picture every day 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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