Dow Jones futures and S&P 500 futures pared gains significantly Monday morning, while Nasdaq futures turned lower, as a new round of Russia-Ukraine peace talks has gotten underway. Meanwhile, Treasury yields are at new highs while crude oil prices continued to fall sharply.
The stock market rally attempt survived last week, but the major indexes lost significant ground as Russia's Ukraine invasion continues to roil markets.
The Federal Reserve is set to raise interest rates this coming week with inflation at a 40-year high. Finally, Covid cases are once again picking up again in much of the world. China is reimposing major lockdowns as it faces significant cases for the first time in two years.
The time to ramp up market exposure is in a power trend. Right now, the market is in a power outage. The major indexes have been below their 21-day and 50-day moving averages for weeks. The 21-day exponential moving average has been well below the 50-day line for a long time, with both falling sharply. All of that reflects the recent and extended market weakness, despite some brief advances.
Dow Jones giant UnitedHealth, Regeneron Pharmaceuticals and Harmony Biosciences are showing relatively positive action. All are near buy points or early entries with their relative strength lines at or near highs. It's also no coincidence that all three are medical stocks, relatively insulated from Russia's Ukraine war and soaring inflation.
Apple, Tesla Stock Roughed Up
Two stocks that aren't showing positive action? Apple stock and Tesla.
Apple, which until recently had held up reasonably well, tumbled 5.2% to 154.73 last week, its worst weekly loss in just over a year. Shares settled Friday at their worst close since late November, closing in on the 200-day line.
Apple iPhone contractor Foxxconn on Monday suspended output at its China headquarters in Shenzhen, amid the new Covid lockdowns.
Tesla stock skidded 5.1% last week to 795.35, with all of that coming on Friday. After hitting resistance at its 21-day line, Tesla tumbled back below its 200-day line late in the week. While still comfortably above its late February lows and holding up better than many of its peers, TSLA stock is not doing well.
Tesla is on IBD Leaderboard. UnitedHealth, Regeneron and HRMY stock are on the IBD 50. UNH stock is the subject of the latest New America.
Dow Jones Futures Today
Dow Jones futures rose 0.6% vs. fair value, with a number of financial components helping. S&P 500 futures were up 0.3%. Nasdaq 100 futures sank 0.3%. Those are well off overnight highs, especially tech futures.
U.S. crude oil prices fell 4%.
The 10-year Treasury yield jumped 8 basis points to 2.08%, which would top the recent 20-month high set in February. The yield hit 2.1% earlier in the morning.
Hong Kong tech stocks continued to plunge, with Covid shutdowns, Russia-Ukraine concerns and delisting fears all weighing on the sector. Tencent Holdings faces a possible record fine from China, amid money laundering accusations regarding its WeChat Pay feature, The Wall Street Journal reported.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
Russia's Ukraine Invasion
Russia-Ukraine negotiations resumed Monday. Russia negotiator Leonid Slutsky on Sunday cited "significant progress" in talks, and said there may be a signed deal in the next two or three days. There is no evidence that Russia and Ukraine are anywhere close to a deal.
On Saturday, a senior Russian diplomat said Moscow could target Western ships carrying military aid to Ukraine, saying "it's an action that makes those convoys legitimate targets." Any such attack would be a massive escalation.
Meanwhile, Early Sunday morning, Russia fired some 30 cruise missiles at a base in Yavoriv, northeast of the western Ukrainian city of Lviv and just a few miles from the Polish border. Most were intercepted, but those that hit killed at least 35 people and wounded over 100.
Russia Seeks China Military Aid?
Russia has asked China for military assistance in its Ukraine invasion, according to several media reports Sunday, many of which cited U.S. sources. The Financial Times said there are "some indications that China may be preparing to help."
Russia denied any such request. China's embassy in the U.S. denied reports that Russia is seeking military aid from Beijing.
White House national security adviser Jake Sullivan on Monday is set to meet with a senior Chinese official. Sullivan tweeted Sunday that "there will absolutely be consequences" if China helps Russia evade sanctions.
Russian Sanctions
Russia's finance minister said Sunday that some $300 billion of the country's $640 billion in reserves have been frozen due to sanctions. As a result, "debts in countries unfriendly to Russia we will pay in ruble equivalents."
That would be a clear default. The ruble's value has plunged vs. the dollar since the invasion started.
Russia's stock market will remain closed through March 21. It last traded on Feb. 25, with shares already plunging as Russia's Ukraine invasion got underway.
Germany's economy minister said his country will stop importing Russian coal by the fall and cut off most Russian oil imports by year-end. But cutting out Russian gas is more difficult, he noted. The U.S. banned imports of Russian energy last week.
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Fed Rate Hike Ahead
Fed policymakers meet on March 15-16. After months of forewarning, Fed chief Jerome Powell and his colleagues will almost certainly raise rates by a quarter point on Wednesday afternoon, and signal several more Fed rate hikes.
Last week, the European Central Bank said it would wind down asset purchases faster, moving up expectations for ECB rate hikes.
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Coronavirus Cases
Coronavirus cases worldwide reached 458.71 million. Covid-19 deaths topped 6.06 million.
Coronavirus cases in the U.S. have hit 81.17 million, with deaths above 993,000.
New Covid cases in the U.S. are down more than 95% from their mid-January peak. But in Europe and worldwide, new cases are starting to pick up again amid a new omicron variant.
China Covid Lockdowns
China, which has followed a strict zero-Covid policy for the past two years, is reimposing sweeping restrictions as it faces its biggest outbreak since early 2020. It's locking down southern tech and supply chain hub Shenzhen, with some 17.5 million people, through March 20, after already locking down much of the Northeast. Beijing is cancelling large events and urging residents to stay home.
Hong Kong still faces a heavy case load after infections skyrocketed in late February.
China's homegrown vaccines are far less effective than the Pfizer and Moderna vaccines, especially vs. the omicron variant.
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Stock Market Rally
The stock market rally had another tough week, with Wednesday's strong gain not having a lasting impact.
The Dow Jones Industrial Average retreated 2% in last week's stock market trading. The S&P 500 index slumped 2.9%. The Nasdaq composite tumbled 3.5%. The small-cap Russell 2000 gave up 1%.
The 10-year Treasury yield shot up 28 basis points to 2%.
U.S. crude oil futures skyrocketed to an 11-year high, but then sold off, ultimately losing 5.5% last week to $109.33 a barrel.
ETFs
Among the best ETFs, the Innovator IBD 50 ETF retreated 2.9% last week, while the Innovator IBD Breakout Opportunities ETF fell 2.2%. The iShares Expanded Tech-Software Sector ETF plunged 5.2%. The VanEck Vectors Semiconductor ETF gave up 3.7%.
Reflecting more-speculative story stocks, ARK Innovation ETF dived 7.6% last week, hitting a fresh 22-month low. The RS line for ARKK is now the lowest since late 2017. ARK Genomics ETF slumped 4.65%. Tesla stock remains the No. 1 holding across Ark Invest ETFs.
SPDR S&P Metals & Mining ETF slipped 1.35% last week. The Global X U.S. Infrastructure Development ETF lost 1%. U.S. Global Jets ETF descended 4.35%. The SPDR S&P Homebuilders ETF sank 3.3%. The Energy Select SPDR ETF rallied 2.2% and the Financial Select SPDR ETF fell 2.15%. The Health Care Select Sector SPDR Fund retreated 2.7%.
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UnitedHealth stock fell 3.2% last week to 482.87, but found support at the 50-day line. UNH stock has a double-bottom base with a handle, giving it a 500.10 buy point.
Regeneron stock rose 3.6% to 642.58 last week, following a slew of tight weekly closes during 2022. On Friday, REGN stock moved intraday above early entries at 636.46 and 645.10, though it closed below the latter as the market sold off into the close. Regeneron has an official buy point of 673.96 from a flat base within a larger consolidation, according to MarketSmith analysis.
Regeneron earnings skyrocketed in 2021, fueled by Covid antiviral treatments. Earnings are expected to tumble in 2022, but remain well above pre-2021 levels. The price-to-earnings ratio for REGN stock is just 8.
Harmony Biosciences stock jumped 9% to 43.86 last week, even as it retreated 3.9% on Friday. HRMY stock briefly cleared a 45.99 cup-base buy point after running up from an early entry. But shares could form a high-ish handle, offering a new entry. After booming earnings growth last year, analysts see Harmony's EPS dipping in 2022 but they expect a strong rebound next year.
Market Rally Analysis
Russia's Ukraine invasion and looming Fed rate hikes aren't a great backdrop for a market advance. But whatever the reason, the technical picture doesn't look good, though the stock market rally attempt continues.
Big sell-offs on Monday and Tuesday brought the major indexes close to their Feb. 24 lows. Wednesday brought a strong rebound, though on significantly lower volume than in the prior two sessions. The major indexes never touched their 10-day moving averages, let alone the 21-day line or other significant resistance levels. Stocks retreated Thursday and especially Friday, capping another big weekly loss.
Wednesday's gain now looks like a blip. The best percentage gains in history tend to come amid corrections and bear markets.
That's why investors should wait for real signs that a market has changed character via a follow-through day to confirm a new uptrend. A follow-through day could still happen any day.
Not all follow-through days work, though, and a FTD at the current levels would have a slew of caveats.
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Sector Winners, Losers
Energy stocks continue to do well, though many are extended. Some steel and mining plays are around buy points, but are prone to big swings.
There are a number of medical stocks setting up, including UNH stock, Harmony Biosciences and Regeneron. Some transportation, building materials and industrial plays also look interesting — flirting with buy points, setting up, or at least setting up to set up. The relative strength lines are at or near consolidation or all-time highs.
Most of these potential set-ups offer low or relatively modest price-to-earnings ratios, which are definitely in favor in 2022. (That's no guarantee, as Apple stock buckled this week despite a modest P-E ratio of 26.)
Still, these names generally will struggle to make consistent headway — Regeneron's Friday advance excepted — unless the broader market advances, or at least trends sideways.
With interest rates rising once again, growth stocks and especially highly valued growth stocks are struggling mightily. When the market has a big day, aggressive growth stocks tend to lead the way. But they are also leading to the downside on bad market days. And there are more bad days than good days lately.
Tesla stock is a relative leader among EV or aggressive growth generally. But that area of the market is simply out of favor.
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What To Do Now
There's not too much to do right now. Commodity plays are still acting well, though many are extended. Investors could take some partial profits or let them ride.
If you got ahead of the market and bought stocks, especially growth plays, in Wednesday's one-day pop, you may want to exit those positions.
But it's important to stay engaged and be prepared. Build up your watchlists. There are a lot of potentially interesting stocks.
When the market rally does have a follow-through day, you'll want to be ready. But even then, gradually build up your exposure as the market continues to build strength and overcome key hurdles.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
