The Dow Jones Industrial Average sold off more than 400 points Tuesday morning ahead of the Federal Reserve's two-day policy meeting. The 10-year Treasury yield jumped to another 11-year high.
Ford dived 10% after warning that it expects an additional $1 billion in supplier costs in the current third quarter due to inflation.
Diamondback Energy was started with an overweight rating at KeyBanc, but the stock still fell 0.8%. Shares are building a cup with handle with a 141.87 entry. Western Digital was downgraded to hold from buy at Deutsche Bank, sparking a near-4% retreat in morning trade.
Elsewhere, electric-vehicle leader Tesla traded a fraction lower Tuesday. Among the Dow Jones industrials, tech titans Apple and Microsoft were both modestly lower after today's stock market open. Nike was downgraded at Barclays, as shares fell more than 2% in morning trade.
In the market's current weakness, Continental Resources, DoubleVerify, Vertex Pharmaceuticals — as well as Dow Jones stocks Chevron and Merck — are among the top stocks to watch. Keep in mind the new stock market correction is a good reason for investors to be mostly, if not entirely, on the sidelines.
DoubleVerify is an IBD Leaderboard stock, but its position size was trimmed during last week's losses. Tesla was featured in this week's Stocks Near A Buy Zone column.
Dow Jones Today: Treasury Yields, Oil Prices, Fed Meeting
After Tuesday's opening bell, the Dow Jones Industrial Average dropped 1.25%, while the S&P 500 moved down 1.2%. The tech-heavy Nasdaq composite lost 0.9% in morning action.
Among exchange-traded funds, the Nasdaq 100 tracker Invesco QQQ Trust was down 0.85%, and the SPDR S&P 500 ETF lost 0.8% in early trade.
The 10-year Treasury yield jumped to 3.58% Tuesday, hitting another new high. Meanwhile, U.S. oil prices inched lower, as West Texas Intermediate futures traded near $85 a barrel.
The Federal Reserve's two-day meeting will kick off Tuesday, with an interest-rate decision on Wednesday. Markets show an 82% chance the central bank will raise rates by 75 basis points and an 18% chance of a 100 basis-point hike. Investors will be looking for hints at the pace of future rate hikes, and how high the central bank will eventually go.
Stock Market Correction
On Monday, indexes spent most of the day making minor moves, but strengthened in the final hour of trading. The Nasdaq Composite closed 0.8% higher. The S&P 500 rebounded 0.7% while the Dow Jones Industrial Average rose 0.6%.
Monday's The Big Picture column commented, "One reason for the bearish change is the scarcity of actionable stocks. That remained the case Monday, even with a positive finish to the session. In the MarketSmith 250 index, there's relatively few stocks up significantly from breakouts over the past several weeks. Many others have stalled around their entries. That's pretty typical for a market in correction, and it separates the great stock-pickers from everyone else."
To prepare for a new stock market rally, investors should be waiting for a follow-through day. When the market is in a correction, look for at least one major index to attempt a bottom.
The first day the index closes higher counts as Day 1 of its attempted rally. Monday was Day 1 of a rally attempt. The action on Day 2 and Day 3 is irrelevant as long as the index doesn't undercut its latest low. If that low is undercut, the rally try is done and the market needs to try again.
On Day 4 and later, you are looking for the Nasdaq or S&P 500 to rise sharply in higher volume than the previous session. That's a follow-through day. It gives investors the green light to start buying leading stocks breaking out past correct buy points. It should put your portfolio and mindset in sync with the stock market action by gradually committing capital to leading stocks.
During stock market correction, don't tune out. Instead, create watchlists to find emerging stock market leadership by using the relative strength line. The RS line measures a stock's price performance vs. the S&P 500. If the stock is outperforming the broader market, the RS line angles upward. If a stock lags the broad market, the line will point lower.
Five Dow Jones Stocks To Watch Now
Dow Jones Stocks To Watch: Chevron, Merck
Dow Jones stock Chevron rose 0.3% Monday, finding crucial support around its 50-day line. Shares are trading about 6% away from a cup with handle's latest buy point at 166.93 — according to IBD MarketSmith chart analysis — amid a strong performance by energy stocks so far this year. The stock fell 0.5% early Tuesday.
CVX stock shows a strong 97 out of a perfect 99 IBD Composite Rating, per the IBD Stock Checkup. Investors can use the IBD Composite Rating to easily gauge the quality of a stock's fundamental and technical metrics.
Drug giant Merck is also fighting the stock market downtrend. Shares are building a flat base that has a 95.82 buy point, but they are stuck below their 50-day line. Merck shares lost a fraction early Tuesday.
3 Top Growth Stocks To Buy And Watch In The Current Stock Market Correction
Top Stocks To Watch: Continental, DoubleVerify, Vertex
Oil explorer and producer Continental Resources is building a cup with handle with a 72.80 buy point, according to IBD MarketSmith chart analysis. The relative strength line hit a recent high last week, but remains a bit off its 52-week high. CLR shares were down 0.6% early Tuesday.
IBD Leaderboard stock DoubleVerify remains below its 28.07 buy point in a bottoming base despite Monday's 0.55% gain. DV shares lost 1.3% Tuesday morning.
Vertex Pharmaceuticals fell back below its 50-day line following Monday's 1.6% loss. The stock has been holding up well during the ongoing market weakness, as indicated by a RS line that is approaching new highs. There is no new base yet, but the stock's resilience makes it a top idea to watch. Vertex shares were down 0.1% Tuesday.
Join IBD experts as they analyze leading stocks in the current stock market correction on IBD Live
Tesla Stock
Tesla stock rallied 1.9% Monday, rebounding from Friday's slight loss. Shares are approaching short base's 314.74 buy point. Meanwhile, keep an eye out for additional buy points if the stock is able to climb further up the right side of its larger consolidation, which spans back to January. Tesla stock dropped 0.7% Tuesday.
Bullishly, the stock's RS line is at its highest level since April. Shares are about 25% of their 52-week high.
Dow Jones Leaders: Apple, Microsoft
Among Dow Jones stocks, Apple shares climbed 2.5% Monday, ending a two-day losing streak and recovering a portion of last week's losses. Last week, the stock closed at its lowest level since July 18. Apple stock traded down 0.6% Tuesday morning.
Microsoft lost 0.1% Monday, slashing losses after hitting a new 52-week low. The software giant is about 30% off its 52-week high. Microsoft shares declined 1.2% early Tuesday.
Be sure to follow Scott Lehtonen on Twitter at @IBD_SLehtonen for more on growth stocks and the Dow Jones Industrial Average.
