S&P 500 Sells Off But Damage Is Far Worse; Key inflation data due

Dow Jones futures edged higher overnight, along with S&P 500 futures and Nasdaq futures with a key inflation report on Friday.




X



The stock market rally suffered significant losses on Thursday, with major indexes undercut key short-term supports. Below the surface, conditions are even worse as relegations beat winners and breakouts don’t work.

In this sense, Ultimate beauty (ULTA), money tree (DLTR) and Canadian Natural Resources (CNQ) are near breakouts. All have relative strength lines at or near 52-week or record highs.

ULTA stock has been flirting with a 426.93 cup with Henkel buy point, according to MarketSmith analysis. Shares finally fell 0.7% to 422.35 on Thursday. DLTR stock is on the verge of a cup-and-handle breakout, but is also right above its 50-day moving average, which could offer a little more reassurance. Dollar Tree stock has a buy point of 166.45 but a move above Thursday’s high of 163.36 would provide entry into the trendline. Shares fell 0.9% to 159.85. Not trading too far above its 50-day moving average, CNQ stock is part of the market-leading oil and gas sector. Shares fell 2.4% to 66.65, near a handle buy point of 69.56. Canadian Natural Resources was the IBD stock of the day on Thursday.

In the meantime, Fortinet (FTNT) is up 1% to 303.50 and just reclaimed its 50-day moving average, fueled by a 5-for-1 stock split announcement from FTNT. Shares approached the 200-day intraday but fell as the market sell-off intensified. The cybersecurity leader is worth watching as its RS line returns towards highs. FTNT stock is in a chaotic consolidation and far from traditional buy points. Fortinet stock is an IBD Long-Term Leader. Investors could take a position in FTNT stock as the long-term leader if it decisively regains its 200-day moving average. But recent gains are on low volume while current market sentiment is not encouraging.

Tesla stock

Finally, Tesla (TSLA) fell 0.9% to 719.12. For the second straight session, Tesla stock gave back from solid intraday gains and faced resistance at the 21-day moving average. TSLA stock is far from actionable.

Sales and production in China rebounded in May, while Tesla Shanghai production is now reportedly back to full capacity. Meanwhile, the National Highway Traffic Safety Administration is expanding its Autopilot probe to 830,000 Tesla EVs. The investigation began last year with a focus on autopilot crashes involving emergency vehicles. NHTSA is trying to determine whether autopilot “undermines the effectiveness of driver supervision.”

The video embedded in this article analyzed the market action and discussed TSLA stock. Adobe (ADBE) and Quanta Services (PWR).


China Giant nears highs as it grabs EV Crown and becomes Tesla supplier


Consumer Inflation Report

The Department of Labor will release the CPI for May at 8:30 a.m. ET. Economists expect a 0.7% jump from April, led by energy and food prices. CPI inflation is expected to fall to 8.2% for the second straight month from 8.3% in April. But that’s not a significant drop, and it’s possible headline inflation is picking up.

Core prices should rise a solid 0.5% month-on-month. Core inflation is expected to moderate to 5.9% from 6.2% in April.

The Federal Reserve wants inflation to come down significantly and for labor markets to cool enough that wage pressures don’t keep inflation too high.

Dow Jones futures today

Dow Jones futures are up 0.15% from fair value. S&P 500 futures were up 0.1% and Nasdaq 100 futures were up 0.1%.

The CPI inflation report is sure to boost Dow Jones futures and Treasury yields ahead of Friday’s opening bell.

Keep in mind that overnight action in Dow futures and elsewhere doesn’t necessarily translate to actual trading in the next regular trading session.


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


stock market rally

Thursday morning’s stock market rally was mixed, but selling picked up steam, especially late in the afternoon.

The Dow Jones Industrial Average fell 1.9% in trading on Thursday. The S&P 500 index fell 2.4%. The Nasdaq Composite plunged 2.75%. Small-cap Russell 2000 fell 2.3%.

Flex LNG (FLNG), Amphastar Pharmaceuticals (AMPH) and TimkenSteel (TMST) continued to plunge on Thursday when it decisively failed to break out of a new base. Apex Pharma (VRTX), which attempted to break out on Wednesday, fell below its 50-day moving average on Thursday but has not yet failed. Both not Atkore (ATKR), which broke out on Friday and contributed to gains on Monday before undercutting the buy point on Thursday.

US crude prices fell 0.5% to $121.51 a barrel, still at a three-month high. Natural gas prices rose 3% after falling intraday after Wednesday’s solid decline.

The 10-year government bond yield edged up 1 basis point to 3.04%. The European Central Bank said on Thursday that it is likely to start raising interest rates in July.

ETFs

Among the best ETFs, Innovator IBD 50 ETF (FFTY) slipped 3.6%, while Innovator IBD Breakout Opportunities ETF (BOUT) fell 2%. The iShares Expanded Tech-Software Sector ETF (IGV) plunged 3.1%, with FTNT shares an IGV holding. The VanEck Vectors Semiconductor ETF (SMH) fell 2.7%.

The SPDR S&P Metals & Mining ETF (XME) lost 4.8% and the Global X US Infrastructure Development ETF (PAVE) lost 2.1%. The US Global Jets ETF (JETS) fell 3.4%. The SPDR S&P Homebuilders ETF (XHB) was down 0.5%. The Energy Select SPDR ETF (XLE) lost 2.2% and the Financial Select SPDR ETF (XLF) fell 2.5%. The Health Care Select Sector SPDR Fund (XLV) closed down 2.3%.

Reflecting more speculative story stocks, ARK Innovation ETF (ARKK) plunged 6.1% and ARK Genomics ETF (ARKG) 5.65%. TSLA stock remains Ark Invest’s #1 ETF.


The five best Chinese stocks to watch right now


Analysis of the market rally

The stock market rally had its worst day in weeks. Major indices closed below their 21-day moving averages for the first time since late May, undercutting their June intraday lows.

The Nasdaq posted higher volume, marking its second consecutive day. Thursday was also a distribution day for the S&P 500 and the Dow Jones as volume on the NYSE also increased.

But wait, there’s more! The market rally is much weaker than the major indices are suggesting.

The Russell 2000 and S&P MidCap 400, which rose above their 50-day moving averages on Tuesday, fell back on Wednesday and suffered sharp falls on Thursday, undercutting their 21-day moving averages.

Weakness in small caps and mid caps is a good indicator of market breadth, which was miserable on Thursday. Drops led to winners on the Nasdaq nearly 3 to 1 and on the NYSE 4 to 1.

Markets are deteriorating outside of the oil and gas space. Ocean shipping stocks have dived, joining the broader shipping weakness. Metals and miners are melting again. Farming games do not show green shoots. drug stocks and utility companies like VRTX stocks, Pfizer (PFE) and Excelon (EXC) had a tough session after holding up reasonably well.

Leading stocks are not trading well. Oil and gas stocks are doing well overall, but even this sector is seeing big volatile moves, with LNG-related stocks like FLNG stocks plummeting over the past few days. More broadly, breakouts fail, often dramatically.

On the other hand, the next major level to watch is the day after the Nasdaq on May 26th. A close below this FTD low would be a very bad sign for the market to rally.


Time the market with IBD’s ETF market strategy


What now

The stock market rally is showing many worrying signs. Of course, it’s possible that the current uptrend will turn higher once the inflation report and Fed meeting are over. But these events could also be catalysts for stronger sell-offs.

Investors need to use risk management. Even if the market rally bounces back soon, that doesn’t mean the recent failed breakouts will suddenly bounce back and take the lead.

Current market moves help form bases and handles, so investors should update their watchlists with new additions and deletions. Ulta Beauty, Dollar Tree, and Canadian Natural Resources may already have been on your lists, while FTNT stocks may be coming back.

But hold on to your exposure light until conditions improve. It is crucial to take quick partial wins and cut losers quickly.

Read The Big Picture every day to keep up to date with market direction and leading stocks and sectors.

Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.

YOU MAY ALSO LIKE:

Want to make quick profits and avoid big losses? Try SwingTrader

The best growth stocks to buy and watch

IBD Digital: Unlock IBD’s premium stock lists, tools and analysis today

Leave a Comment