Dow Jones Futures: Market Rally Suffers Big Losses As Key Inflation Report Looms

Dow Jones futures and S&P 500 futures were little changed early Friday, while Nasdaq futures rose slightly as investors await a key inflation report before the open.

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The stock market rally suffered significant losses Thursday, with the major indexes undercutting key short-term support. Beneath the surface, conditions are even worse, with decliners trouncing winners and breakouts not working.

With that in mind, Ulta Beauty (ULTA), Dollar Tree (DLTR) and Canadian Natural Resources (CNQ) are right around 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-handle buy point, according to MarketSmith analysis. Shares ultimately dipped 0.7% to 422.35 on Thursday. DLTR stock is close to a cup-with-handle breakout, but also is sitting right above its 50-day line, so that could offer some more safety. Dollar Tree stock has a 166.45 buy point, but a move over Thursday’s high of 163.36 would offer a trendline entry. Shares fell 0.9% to 159.85. CNQ stock isn’t too far above its 50-day line, and is part of the market-leading oil and gas space. Shares declined 2.4% to 66.65, near a 69.56 handle buy point. Canadian Natural Resources was Thursday’s IBD Stock Of The Day.

Meanwhile, Fortinet (FTNT) rose 1% to 303.50, just reclaiming its 50-day line, fueled by a 5-for-1 FTNT stock split announcement. Shares neared the 200-day intraday, but backed off as the market sell-off intensified. The cybersecurity leader is worth watching, with its RS line rebounding toward highs. FTNT stock is in a messy consolidation and is a long way from traditional buy points. Fortinet stock is an IBD Long-Term Leader. Investors could take a position in FTNT stock as a Long-Term Leader if it regains its 200-day line decisively. But recent gains have come on light volume, while the current market climate isn’t encouraging.

Tesla Stock

Finally, Tesla (TSLA) fell 0.9% to 719.12. For a second straight session, Tesla stock backed off solid intraday gains, hitting resistance at the 21-day moving average. TSLA stock is a long way from being actionable.

China sales and production rebounded in May, while Tesla Shanghai output reportedly is now back to full capacity. Meanwhile, The National Highway Traffic Safety Administration is expanding its Autopilot probe to 830,000 Tesla EVs. The investigation started last year with a focus on Autopilot crashes with emergency vehicles. NHTSA is seeking to determine if Autopilot undermines “the effectiveness of the driver’s 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 Seizes EV Crown, Becomes Tesla Supplier

Consumer Inflation Report

The Labor Department will release the May consumer price index at 8:30 a.m. ET. Economists expect a 0.7% jump vs. April, led by energy and food prices.

The CPI inflation rate should dip for a second straight month to 8.2% from April’s 8.3%. But that isn’t a notable decline, and there’s a significant possibility that the overall inflation reading will pick up.

Stock and bond markets could react badly to a hotter inflation reading.

Core prices should climb a solid 0.5% month to month. Core inflation is expected to cool to 5.9% from April’s 6.2%.

The Federal Reserve wants to see inflation coming down significantly, with labor markets cooling enough that wage pressures don’t keep inflation too high.

Dow Jones Futures Today

Dow Jones futures fell less than 0.1% vs. fair value. S&P 500 futures edged higher and Nasdaq 100 futures climbed 0.3%.

Crude oil prices rose slightly, back above $122 a barrel.

The 10-year Treasury yield rose 1 basis point to 3.05%.

The CPI inflation report is sure to swing Dow Jones futures and Treasury yields before Friday’s opening bell.

U.S.-listed Chinese stocks rebounded somewhat Friday after tumbling Thursday on weak earnings, regulatory news and Covid restrictions.

Remember that overnight action in Dow futures and elsewhere doesn’t necessarily translate into actual trading in the next regular stock market session.

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

Stock Market Rally

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

The Dow Jones Industrial Average fell 1.9% in Thursday’s stock market trading. The S&P 500 index slumped 2.4%. The Nasdaq composite tumbled 2.75%. The small-cap Russell 2000 retreated 2.3%.

Flex LNG (FLNG), Amphastar Pharmaceuticals (AMPH) and TimkenSteel (TMST) continued to tumble Thursday in decisive failures to break out from a new base. Vertex Pharmaceuticals (VRTX), which tried to break out Wednesday, fell below its 50-day line on Thursday, but isn’t wrecked yet. Neither is Atkore (ATKR), which broke out Friday and added to gains Monday, before undercutting the buy point on Thursday.

U.S. crude oil prices dipped 0.5% to $121.51 a barrel, still right at three-month highs. Natural gas prices rose 3% after tumbling intraday following Wednesday’s solid decline.

The 10-year Treasury yield edged up 1 basis point to 3.04%. The European Central Bank said Thursday that it’s set to start raising interest rates in July.

ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) skidded 3.6%, while the Innovator IBD Breakout Opportunities ETF (BOUT) lost 2%. The iShares Expanded Tech-Software Sector ETF (IGV) tumbled 3.1%, with FTNT stock an IGV holding. The VanEck Vectors Semiconductor ETF (SMH) gave up 2.7%.

SPDR S&P Metals & Mining ETF (XME) sold off 4.8% and the Global X U.S. Infrastructure Development ETF (PAVE) retreated 2.1%. U.S. Global Jets ETF (JETS) descended 3.4%. SPDR S&P Homebuilders ETF (XHB) dipped 0.5%. The Energy Select SPDR ETF (XLE) lost 2.2% and the Financial Select SPDR ETF (XLF) slumped 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 is the No. 2 holding across Ark Invest’s ETFs.

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Market Rally Analysis

The stock market rally had its worst day in weeks. The major indexes closed below their 21-day moving averages for the first time since late May and undercut their June intraday lows.

The Nasdaq saw higher volume, marking its second straight distribution day. Thursday also was a distribution day for the S&P 500 and Dow Jones, as NYSE volume picked up as well.

But wait, there’s more! The market rally is a lot weaker than the major indexes indicate.

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

The weakness in small caps and mid caps is a good proxy for market breadth, which was lousy Thursday. Decliners led winners nearly 3-to-1 on the Nasdaq and by 4-to-1 on the NYSE.

Outside the oil and gas space, market action is deteriorating. Oceangoing shipping stocks have dived, joining weakness in shipping generally. Metals and miners are melting again. Agriculture plays aren’t showing green shoots. Drug stocks and utilities such as VRTX stock, Pfizer (PFE) and Exelon (EXC), after holding up reasonably well, had a tough session.

Leading stocks are not acting well. Oil and gas stocks are doing well overall, but even that sector sees big volatile moves, with LNG-related plays such as FLNG stock plunging in the past couple of days. More broadly, breakouts are failing, often in dramatic fashion.

On the downside, the next big level to watch is the Nasdaq’s May 26 follow-through day. A close below that FTD low would be a very bad sign for the market rally.

Time The Market With IBD’s ETF Market Strategy

What To Do Now

The stock market rally is showing a lot of worrisome signs. Of course, it’s possible that the current uptrend will rev higher once the inflation report and Fed meeting are in the past. But those events also could be catalysts for sharper sell-offs.

Investors have to use risk management. Even if the market rally does soon rebound, that doesn’t mean recent failed breakouts will suddenly revive and lead the charge.

The current market action is helping bases and handles to form, so investors should be updating their watchlists with new additions and deletions. Ulta Beauty, Dollar Tree and Canadian Natural Resources may have already been on your lists, while FTNT stock might be one to slip back on.

But keep your exposure light until conditions improve. Taking quick partial profits and cutting losers quickly is vital.

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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