Dow Jones futures rose slightly late Wednesday, along with S&P 500 futures and Nasdaq futures. The stock market rally suffered another day of heavy losses as a big jump in inflation scared investors, pushing Treasury yields significantly higher.
Bitcoin extended losses after Tesla CEO Elon Musk said his company would no longer let people make vehicle purchases via Bitcoin, citing the cryptocurrency’s heavy energy use.
The Colonial Pipeline restarted operations Wednesday afternoon, as gasoline supplies ran increasingly low across the East Coast. Chinese e-commerce giant Alibaba (BABA) is on deck to report earnings early Thursday
After rallying from intraday lows on Tuesday, especially the Nasdaq, the major indexes and small-cap Russell 2000 all undercut Tuesday’s lows and closed near their worst levels. Chip stocks were hammered again but so were tech titans, software and highly valued growth stocks, including the likes of Tesla, Apple (AAPL), Microsoft, Amazon, Square and Lam Research. Housing-related stocks such as Floor & Decor sold off hard again. Miners and metals stock tumbled, though their charts generally look OK. Financials also gave up ground after initially holding up.
One positive sign is that investors are becoming a little more fearful and a little less bullish, according to the CBOE Volatility Index, put-call ratio and the Bulls vs. Bears reading. While nowhere near excessive bearishness that might foreshadow a market bottom, they at least are no longer excessively bullish.
Outdoor cooler and drinkware maker Yeti Holdings (YETI) and artificial decking products firm Azek (AZEK) report before the open, along with Alibaba stock. Yeti stock fell back into a buy zone Wednesday. Azek, which dropped below a buy point Tuesday, tumbled below its 50-day line on Wednesday and flashed an automatic sell signal. It fell further below the buy point and below its 50-day line. BABA stock is trading near 10-month lows as Chinese internets and U.S.-listed Chinese equities overall have struggled for months.
Inflation Jumps, With PPI On Tap
Consumer prices rose 0.8%, the Labor Department reported Tuesday morning, while core CPI popped 0.9%, the most since 1982. Both were much higher than expected. Year over year, consumer prices swelled 4.2%, the highest since 2008. Core inflation climbed 3%, the most since 1996.
Swelling price pressures are squeezing consumers and many businesses. But the Federal Reserve says higher inflation will be “transitory,” fading again in 2022. But the market fear is that inflation will rise even more than expected, and stay higher.
Unless Fed policymakers can convince investors that higher inflation will be temporary, or that they’ll quickly respond to sustained price pressures without overreacting, then financial markets may remain under a cloud indefinitely.
On Thursday, the Labor Department releases the producer price index. This raw-to-finished goods price gauge is more sensitive to soaring commodity prices.
Bitcoin Price Gets Musked
Bitcoin price traded sharply lower Wednesday night, below $53,000, after Elon Musk announced on Twitter that people could no longer buy Tesla vehicles with the cryptocurrency. He cited the increasing use of fossil fuels for Bitcoin mining and transactions. Musk also said Tesla will not sell any Bitcoin but will use it for transactions once that digital asset is on a more-sustainable energy basis.
Tesla bought some Bitcoin in early 2021, and sold a portion before the end of the first quarter at a profit, boosting Q1 results.
Bitcoin and most other digital assets were already lower Wednesday amid a general “risk off” shift across financial markets.
Dow Jones Futures Today
Dow Jones futures rose 0.3% vs. fair value. S&P 500 futures climbed 0.1%. Nasdaq 100 futures were up 0.2%.
Energy Secretary Jennifer Granholm said the Colonial Pipeline restarted operations at about 5 p.m. ET, a big positive for the U.S. economy though not a huge surprise. The largest U.S. gasoline pipeline, which serves the East Coast, was shut down Friday in response to a cyberattack. It will take a few days for supplies to return to normal with more and more gas stations running dry meanwhile.
Coronavirus cases worldwide reached 161.06 million. Covid-19 deaths topped 3.34 million.
Coronavirus cases in the U.S. have hit 33.58 million, with deaths above 597,000.
Stock Market Rally
U.S. Stock Market Today Overview
Last Update: 3:14 PM ET 5/12/2021
The stock market rally had an unambiguously bad day, selling off hard, closing near lows, with broad-based losses among the major indexes, sectors and leading stocks.
The Dow Jones Industrial Average slumped 2% in Wednesday’s stock market trading. The S&P 500 index retreated 2.15%. The Nasdaq composite skidded 2.7%. The Russell 2000 slumped 3.2%, hitting the lowest point since late March and the weakest close since Feb. 1.
The 10-year Treasury yield jumped 7 basis points to 1.695%, the highest in several weeks. It’s the fourth straight gain for the 10-year yield, which rebounded from an intraday low of 1.47% last Friday following the surprisingly weak April jobs report.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) lost 4.7%, while the Innovator IBD Breakout Opportunities ETF (BOUT) gave up 3.1%. The iShares Expanded Tech-Software Sector ETF (IGV) slumped 2.5%. MSFT stock is the largest IGV holding. The VanEck Vectors Semiconductor ETF (SMH) tumbled 4.1%. LRCX stock is a major SMH component.
SPDR S&P Metals & Mining ETF (XME) rolled back 4.7% and Global X U.S. Infrastructure Development ETF (PAVE) lost 3.2%. U.S. Global Jets ETF (JETS) sank 2.9%. SPDR S&P Homebuilders ETF (XHB) skidded 5%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) fell 3.7% and ARK Genomics ETF (ARKG) 2.5%. Tesla stock is the No. 1 holding across ARK Invest’s ETFs. Square stock is also a top-five ARK holding.
Key Stocks Breaking, Testing Key Support
Apple stock fell 2.5% to 122.77 on Wednesday. That’s just below its 200-day moving average and its weekly chart equivalent, the 40-week line. Just two days earlier, AAPL stock fell through its 50-day line. The relative strength line for AAPL stock is at the lowest level since last July.
Amazon stock slid 2.2% to 3,151.94, below its 50-day and 200-day lines. The RS line for AMZN stock hit a 10-month low earlier this week.
LRCX stock tumbled 5.9% to 557.67 after rallying to close just below its 50-day line on Tuesday. Just a few days ago, Lam Research stock looked poised to flash an early buy signal with one strong session, but the LRCX chart is damaged now.
Square stock tumbled 6.3% to 206.68, closing just above its 200-day moving average. But SQ stock ended a fraction below its 40-week line. The RS line for Square is at the lowest level since November.
Tesla stock slumped 4.4% to 589.89, bringing its weekly loss to 12.2%. TSLA stock is just above its 200-day line but, like Square stock, slightly below its 40-week line. Also, Tesla undercut its late March low, though it’s still above its early March bottom. The RS line for TSLA stock is at a 2021 low.
FND stock slumped 4% to 101.39, flashing various sell signals. From an official buy point of 108.14 or 108.64, Floor & Decor stock is now down significantly and below its 50-day line. FND stock also has round tripped an earlier entry of 101.64.
Market Rally Analysis
The stock market rally has clearly deteriorated over the last several days. The major indexes went right through Tuesday’s lows and moved toward testing or breaking new support levels.
The Dow Jones fell through its 21-day exponential moving average. The S&P 500 index, which closed Tuesday just below its 21-day line, neared its 50-day line. The S&P hasn’t tested that key level since an intraday dip on March 25. Breaking that 50-day line would be a very bad sign for the stock market rally, perhaps a fatal blow.
The Nasdaq composite is losing sight of its 50-day line. Its next support levels are its late March lows and then its early March nadir. The latter lines up fairly closely with the 200-day average, which the Nasdaq hasn’t touched in just over a year.
Tech appears to be weak across the board. The broad housing sector is struggling with Treasury yields rising. Even commodity plays were mixed to lower.
We’ve moved from a “hard penny” market to one in which investors struggle to make pennies with one hand while losing dollars with the other.
Good News Is Bad News … Is Good News
The only good news is that investors are paying attention to the bad news.
The CBOE Volatility Index, commonly as the VIX, shot up 26% to 27.57. The market’s fear gauge, which had been trading near 52-week lows, jumped 11% on Tuesday. It’s still below the late March and early March peaks — and far, far below the March 2020 top. That lines up with the major indexes early and late March lows.
The put-call ratio rose to 0.84, the highest since Oct. 30, when the stock market bottomed just ahead of the Election rally. Normally, the put-call ratio has to get well over 1.0 to flash excessive bullishness, but high call option buying over the past year seems to have distorted this indicator.
Meanwhile, the Bulls vs. Bears reading showed that 58.2% of investment newsletter writers are bullish, vs. 17.2% who are bearish. The bullish reading is down from 60.4% in the prior week and 63.4% in the week ended April 23. Readings over 60% are highly bullish.
What To Do Now
Investors should be reducing exposure. It’s OK to hold onto some winning stocks that are standing their ground or showing relative strength. But losers and laggards should be eliminated. Protecting your financial and mental capital is your top priority.
Yes, it’s always possible that Wednesday marked a low and that stocks will rally from here. After several days of losses, at least a temporary bounce from current levels wouldn’t be a surprise. But if it’s a rally that lasts for several weeks and months, you’ll have plenty of opportunities to make strong gains.
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.
YOU MAY ALSO LIKE: