Dow Jones futures open Sunday night, along with S&P 500 futures and Nasdaq futures heading into a massive week of gains from Apple to Tesla as well as a key Federal Reserve meeting. Bitcoin and other cryptocurrencies continued to sell off over the weekend.
The stock market correction took hold last week, with major indices suffering heavy losses and breaking several key support levels. Even strong sectors, notably financials, came under severe pressure. So far, bulls have been charging only briefly, and investors have been quick to sell rebounds rather than buy the pullback. It’s a time to be strong defensively.
Tesla stocks and Dow Jones giants Apple (AAPL), Microsoft (MSFT) and Caterpillar (CAT) are featured this week along with dozens of other quality companies. But the main event will likely be the Federal Reserve meeting on January 25th and 26th.
The announcement of Wednesday afternoon’s Fed meeting and Fed Chair Jerome Powell’s press conference could set the tone for stock market and Treasury returns for the coming weeks. The Fed is expected to continue its accelerated tapering and remain on track to end asset purchases by mid-March.
But the real problem is what happens next. Fed Chair Powell is expected to comment on the timing and pace of rate hikes and balance sheet cuts. Talk of trimming the balance sheet, and doing so at a fast pace, was a big reason the 10-year Treasury yield has skyrocketed and the stock market has entered a correction.
Tesla (TSLA) and Microsoft shares are on the IBD leaderboard. MSFT shares are on the IBD Long-Term Leaders list. Tesla stock is on the IBD-50 list.
The video embedded in this article discusses the market correction in detail while also analyzing Apple stock. UnitedHealth (UNH) and Transport services by JB Hunt (JBHT).
Dow Jones futures today
Dow Jones futures open at 6 p.m. ET, along with S&P 500 futures and Nasdaq 100 futures.
Bitcoin continued to sell off along with other cryptocurrencies. Bitcoin price plummeted to around $35,000 after breaking through $40,000 on Friday. It peaked at $68,990.90 in early November.
Keep in mind that overnight action in Dow futures and elsewhere doesn’t necessarily translate to actual trading in the next regular trading session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Coronavirus cases worldwide reached 350.42 million. The number of deaths from Covid-19 exceeded 5.61 million.
Coronavirus cases in the US have reached 71.7 million, with deaths exceeding 888,000.
US coronavirus cases are declining, albeit from extremely high levels. New York and other states hit early by the Omicron-Covid variant are leading the decline. Deaths have increased in recent weeks, but not nearly as many as new cases.
stock market correction
The market correction started last week and hasn’t let up, with major indices falling every day of the holiday-shortened week.
The Dow Jones Industrial Average fell 4.6% in trading last week. The S&P 500 Index slipped 5.7%. The Nasdaq Composite plunged 7.6%. Small-cap Russell 2000 is down 8%.
The 10-year Treasury yield rose to a two-year high of 1.87% on the day on Wednesday, but ended the week slightly down at 1.75%.
Crude oil futures rose 2.2% to $85.14 a barrel, although they edged back slightly from their highest levels since 2014 towards the end of the week.
Five resilient stocks in the market correction
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) fell 11.4% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) fell 8.6%. The iShares Expanded Tech-Software Sector ETF (IGV) fell 5.2% with MSFT shares a key component. The VanEck Vectors Semiconductor ETF (SMH) fell 11.5% as the formerly resilient chip sector fell sharply.
The SPDR S&P Metals & Mining ETF (XME) fell 10% last week. The Global X US Infrastructure Development ETF (PAVE) fell 6.4%. The US Global Jets ETF (JETS) fell 6.2%. The SPDR S&P Homebuilders ETF (XHB) fell 7.7%. The Energy Select SPDR ETF (XLE) lost 3.2%, even as energy prices rose. The Financial Select SPDR ETF (XLF) is down 6.5%. The Health Care Select Sector SPDR Fund (XLV) fell 3.45%
ARK Innovation ETF (ARKK) slumped 10.9% and ARK Genomics ETF (ARKG) 9.7% last week, reflecting more speculative story stocks. Tesla stock remains the #1 ETF from ARK Invest.
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Microsoft earnings are due Tuesday night and provide insights into other software makers and cloud computing giants. Microsoft stock looked strong at the end of 2021 but has plummeted in the new year. Shares fell 4.6% last week to 296.03 and neared its 200-day moving average. A strong recovery after 200 days could present a buying opportunity for MSFT shares as the long-term leader.
For traditional position trading, investors should wait for Microsoft to at least recover the 50-day moving average, which is unlikely to happen unless the broader market sees a real recovery. The official buy point is 349.77 from a flat base, according to MarketSmith analysis.
Microsoft stock’s relative strength line has fallen over the past two months, but hasn’t crashed. The RS line, the blue line on the provided charts, actually ticked higher last week. That reflects how poorly the S&P 500 performed last week.
Tesla’s earnings are due Wednesday night. The EV giant should report strong earnings growth amid booming vehicle deliveries and strong pricing power. Investors may be more interested in the 2022 guidance, including an overall delivery target and the final opening of the Berlin and Austin plants. You’ll also want to know when future vehicles may arrive. Cybertruck production has reportedly been pushed back to 2023, but Tesla hasn’t confirmed that. Any specific guidance on 4680 battery cells would also be greatly appreciated.
Tesla shares fell 10.1% last week to 943.90. Shares are losing sight of the now 50-day moving average and are back below the key 1,000 level. TSLA stock is still trading within a somewhat loose double bottom basis but is securely in the lower half. The buy point is just above 1,200.
The RS line for Tesla stock has been trending mixed down for the past two weeks. On the plus side, TSLA stock has held up much better than most growth stocks, especially those with triple-digit price-to-earnings ratios.
Apple stock fell 6.2% last week, plunging through its 50-day and 10-week moving averages, a solid sell signal. But the RS line for AAPL stock is barely down.
Apple’s earnings are due Thursday night. Year-on-year comparisons are becoming increasingly difficult for the iPhone giant. Leadership will be key. A positive reaction to Apple’s earnings would not only propel AAPL stock higher, but likely a slew of chipmakers and other companies in the iPhone ecosystem as well.
Caterpillar’s earnings on Friday cap a busy week.
CAT stock fell 6.5% last week to 214.09, retesting its 200-day moving average. But that follows four straight weeks of gains, the last two on strong volume. Caterpillar stock has now formed a grip on its consolidation since early June. The CAT stock buy point is now at 230.43.
The RS line for Caterpillar stock is a long way off the highs, but has made a solid move higher so far in 2022.
Stock market analysis
It’s a stock market correction, make no mistake. Major indices closed at or near session lows all week, with the Nasdaq Composite and Russell 2000 down more than 1% each day.
The Nasdaq has fallen below its 200-day moving average for the first time since April 2020. The composite didn’t stop there, undercutting the October lows to their lowest levels since June. The Russell 2000 is at a 52-week low. The Dow Jones fell through its 50-day and 200-day moving averages last week.
The S&P 500 index, which has led the market rally in 2021, broke below its 200-day moving average on Friday.
The advance-decline line, which has been lagging behind for months, has collapsed in recent weeks.
Growth stocks continue to lead the sell-off but financials were hit hard last week as bond yields fell and earnings reports were weak at best. Metals and mining stocks that looked strong a week ago have tumbled over the past week, although some names still look OK. Energy stocks fell somewhat.
A market rebound would come as no surprise early next week as the bulls attempt to hold near the S&P 500’s 200-day day. The CBOE volatility index, commonly known as the VIX, has been rising for the past few days and is finally getting close to at least its early December highs. When the so-called market fear gauge reaches extreme levels, it can signal that a near-term bottom is near.
The market attempted to recover several times over the past week, but the recovery lasted only a few minutes or hours.
At some point, stocks will have a positive session, but that doesn’t mean the market has bottomed. Wait for the stock market rally attempt to kick off a following day to confirm the new uptrend.
Time the market with IBD’s ETF market strategy
Earnings season is usually an exciting time as investors must decide whether or not to hold their positions in earnings reports. But for now, most investors should be mostly in cash, with the exception of core holdings of long-time winners.
Investors should look for stocks that are holding up relatively well during the market correction. Don’t pay too much attention to whether stocks are in the right base or near buy points. If a market rally attempt is a few days away, you can focus more on stocks to create buying opportunities ahead of a following day. Right now you’re looking for raw talent.
Right now, Apple stock is giving up ground, but it’s still holding up quite well. After the result it could look much better or worse. UnitedHealth, JB Hunt and traveler (TRV) have already reported gains, removing a key uncertainty, but that doesn’t mean they will hold any longer.
Read The Big Picture every day to keep up to date with 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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