Dow Jones futures were little changed Tuesday night, along with S&P 500 futures and Nasdaq futures. The stock market rally pulled back from record highs as investors awaited the outcome of the two-day Federal Reserve meeting Wednesday afternoon. Oracle (ORCL) and Roblox (RBLX) headlined after-hours news while Bitcoin traded near the highs of its recent range.
The S&P 500 briefly hit a fresh high Tuesday morning before retreating. The Nasdaq, which set a closing high Monday, also slid, along with the Dow Jones and Russell 2000. Freeport-McMoRan (FCX) and other mining stocks were big losers, with copper prices tumbling. On the upside, oil stocks continued to climb with U.S. crude prices.
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Oracle earnings rose 28%, better than expected and the fourth straight quarter of accelerating growth. Fiscal fourth-quarter revenue rose nearly 8%, the best gain in six years, though helped by easy comparisons. For the current quarter, Oracle guided below analyst estimates on sales.
ORCL stock fell solidly in extended trade. Shares fell 1.2% on Tuesday to 81.60, just above their 21-day exponential moving average. Oracle stock, which peaked at 85.03 on June 8, is in range from an 80.82 buy point from a three-weeks-tight pattern.
Roblox stock tumbled 8% in overnight trade. After the close Roblox released May metrics that signaled a slight decline in users the prior month. Daily active users hit 43 million last month, up 28% vs. a year earlier but down 1% from April. Hours engaged did rise 9% vs. a year earlier and 1% vs. April. The company estimated revenue more than doubled year over year to $149 million to $151 million.
RBLX stock had rallied 2.3% to 89.80, finding key support at the 21-day line. But that could be prelude to another key test Wednesday. RBLX stock broke above a 77.89 handle-like buy point on May 21, rising to 103.87 on June 4.
Fed Meeting In Focus
Federal Reserve policymakers are expected to leave interest rates and asset purchases in place at the end of the two-day Fed meeting at 2 p.m. ET. The only question is whether the Fed statement, or Fed chief Jerome Powell during his 2:30 p.m. ET press conference, will signal that the central bank is beginning to talk about tapering bond buys later this year. Policymakers already have been talking about tapering.
Many on Wall Street are betting that actual taper talk won’t begin until late July-September, either at a Fed meeting or the Jackson Hole monetary symposium.
Retail sales fell 1.3% in May, though April outlays were revised higher. The report signaled a shift toward restaurants and clothing and away from pandemic-era outlays such as home improvement. Housing-related retailers such as RH (RH) and Home Depot (HD) retreated as consumers shift from pandemic spending habits..
The New York Fed’s Empire State Index showed factory growth slowed more than expected in June.
The producer price index rose more than expected, with wholesale inflation continuing to rise. But as long as economic activity and employment come in lighter than expected, the Federal Reserve is unlikely to be concerned that it’s behind the curve.
The recent sell-off in lumber and copper futures also will likely ease fears of runaway price pressures.
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Dow Jones Futures Today
Dow Jones futures fell about 0.1% vs. fair value. S&P 500 futures were just below break-even. Nasdaq 100 futures edged higher.
Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.
Bitcoin traded above $40,000 Tuesday night. Intraday, Bitcoin briefly topped $41,000, at the high end of a $30,000-$41,000 range over the past several weeks. On Sunday, Tesla CEO Elon Musk tweeted that the EV maker continues to hold a lot of Bitcoin and that it could resume Bitcoin transactions in the future.
Even if Bitcoin breaks convincingly above the $41,000 level, there could be a significant amount of overhead supply. Bitcoin peaked at $64,829.14 in mid-April but the bulk of its sell-off started in early May.
Bitcoin could move significantly on any Fed news Wednesday, especially if the U.S. dollar reacts.
Coinbase (COIN) fell 2.9% to 232.21, retreating from its 21-day line. COIN stock has rebounded from a June 8 closing low as Bitcoin price has picked up.
Stock Market Rally
The stock market rally retreated Tuesday, but declines were relatively modest.
The Dow Jones Industrial Average slipped 0.3% in Tuesday’s stock market trading. The S&P 500 index edged down 0.2%. The Nasdaq composite fell 0.3%. The small-cap Russell 2000 dipped 0.3%.
The 10-year Treasury yield was steady at 1.5% ahead of the Fed meeting. The benchmark Treasury yield rose modestly Monday after hitting three-month lows last week as inflation fears ebb.
Copper futures fell more than 4% on Tuesday. Mining stocks sold off, with FCX stock down 4.7%. FCX stock was the second-worst performer in the S&P 500 on Tuesday.
Crude oil prices rose above $72 a barrel for the first time since October 2018.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) slumped 0.9%, while the Innovator IBD Breakout Opportunities ETF (BOUT) declined 0.7%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 1.4%, with Microsoft and Oracle stock both major components. The VanEck Vectors Semiconductor ETF (SMH) gave up 0.9%.
SPDR S&P Metals & Mining ETF (XME) dipped 0.5%, with steelmakers erasing some notable intraday losses. Global X U.S. Infrastructure Development ETF (PAVE) rose 0.4%. U.S. Global Jets ETF (JETS) slid 0.5%. SPDR S&P Homebuilders ETF (XHB) was up 0.35%. Energy Select Sector SPDR ETF (XLE) jumped 1.9%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) fell back 2.7% and ARK Genomics ETF (ARKG) 2.3%. ARKK is once again below its 200-day line while closing just above its 50-dayline. ARKG is still above both key levels. Tesla stock is the top holding across ARK Invest’s ETFs. COIN stock is also a notable ARK Invest holding.
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MSFT stock dipped 0.6% to 258.36 on Tuesday. That’s just below a 263.29 cup-base buy point, according to MarketSmith analysis. The shallow cup pattern is part of a base-on-base-on-base formation. About 1.9% above the 10-week line, Microsoft stock is actionable as a Long-Term Leader
The relative strength line for Microsoft stock is still off its July 2020 peak. But it’s not far from its April consolidation high. The RS line, the blue line in the charts provided, tracks a stock’s performance vs. the S&P 500 index.
Tesla stock fell 3% on Tuesday to 599.36, back below its 200-day moving average and the key 600 level. While off its May lows, TSLA stock remains somewhat rangebound, as well as stuck below its 50-day line. The RS line for Tesla stock remains near seven-month lows.
Market Rally Analysis
The stock market rally had a modest pullback Tuesday, but looks fine. A little caution ahead of a Fed meeting announcement is perfectly natural. The S&P 500 has been hitting record highs with the Nasdaq and Russell 2000 close behind, all trending higher for several weeks. The Dow Jones is a bit of a laggard, testing the 50-day line. But even the blue chips are close to all-time levels.
Sector rotation continues, with miners suffering serious losses. Housing-related retailers are under increasing pressure, reflecting a shift in consumer spending habits.
The recent growth stock trend remains intact. But that could still change, especially if Fed taper talk or economic data push the 10-year Treasury yield higher.
Don’t Double Down On Beaten-Down Stocks
A number of hard-hit, highly valued tech stocks have signaled some signs of bottoming, with big gains in recent weeks. CAN SLIM investing generally focuses on stocks that are forming bullish bases after a prior uptrend. Some big 2020 winners that are looking strong include Cloudflare (NET) and CrowdStrike (CRWD).
But if you’re going to dabble in stocks that are trying to bounce back from 50%, 60%, 70% declines, keep them a relatively small share of your overall portfolio. Yes, these stocks can rack up big daily gains. And if you bet right, you can reap huge gains over the next several weeks or months. However, these stocks also can rack up huge daily losses. If the Nasdaq retreats 2%-3%, it’s likely that many highly valued names will fall 5%, 10% or more.
Given that the Nasdaq has rallied for several weeks and is potentially hitting resistance at record highs, investors may want to pause new buys of beaten-down stocks until the tech-heavy index clearly breaks through to a new high.
Longer term, some of these former leaders will rebound to new highs relatively quickly, while some may take years. Some may never do so.
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.
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