Dow Jones Futures: Nasdaq Breaks Lower; China Covid Shutdowns Are New X Factor
Dow Jones futures rose slightly overnight, along with S&P 500 futures and Nasdaq futures. The stock market rally attempt suffered a big blow Monday as energy, commodity and tech stocks all retreated as China’s new Covid lockdowns overshadowed Russia’s Ukraine invasion and a looming Fed rate hike.
Apple stock, which looked resilient until recently, undercut key support levels Monday. Tesla stock is approaching recent lows but still looks much better than EV rivals such as Xpeng (XPEV) and aggressive growth plays generally.
UNH stock, Vertex Pharmaceuticals (VRTX), Costco Wholesale (COST), Danaos (DAC) and Travelers (TRV) are showing strength. UnitedHealth Group (UNH), Vertex and COST stock are near possible entries, while TRV stock cleared a buy point and Danaos arguably is actionable.
But investors should be extremely cautious about buying any stock until market conditions improve dramatically.
China Covid Lockdowns
China’s Covid cases are now above 1,000 a day, the highest in nearly two years. While still modest compared with most of the world, Beijing continues its zero-Covid policy.
China has locked down Shenzhen, a major tech and supply-chain hub, after 86 cases were detected there on Sunday. The country has also locked down Changchun, an industrial province in the northeast. Beijing residents have been urged to stay inside as much as possible. Apple (AAPL) iPhone maker Foxxconn closed its Shenzhen factory, while some automakers cut output as well.
Starting Tuesday, China ordered Langfang, a large city near Beijing to go on lockdown. Xi’an, which had a strict lockdown late last year, ordered residents not to leave the city unless necessary.
If China can quickly contain the latest outbreaks and lift shutdowns, it would be a big boost for the global economy and financial markets. But the fear is that the country, sticking to a zero-Covid strategy, will expand shutdowns further and keep them in place for an extended period.
With China growth at risk, crude oil, copper and other commodity prices plunged, hitting energy, mining, fertilizer and metals stocks. U.S.-listed China stocks from Alibaba to XPEV, already hammered by revived delisting fears, continue to crash. Container shipping firms such as Matson (MATX) and DAC stock rallied.
Meanwhile a U.S. official reportedly said Washington has informed NATO and other allies that China has signaled it’s willing to offer military and economic aid to Russia to support the Ukraine invasion. But other reports suggested China would not do so. The U.S. could be publicizing possible China support for Russia’s invasion to try to discourage Beijing from going through with it.
Fed Rate Hike Looms
The Federal Reserve begins its two-day policy meeting on Tuesday, with an announcement due at 2 p.m. ET on Wednesday. Fed chief Jerome Powell signaled last week that he favors a quarter-point rate hike. Analysts expected a slew of Fed rate hikes in 2022, subject to swings in inflation and economic growth amid a lot of variables.
Compared with the Russia-Ukraine war and coronavirus lockdowns in China, a major Fed tightening cycle seems relatively predictable.
The video embedded in this article discusses the market action and analyzes UnitedHealth, Costco and DAC stock.
Dow Jones Futures Today
Dow Jones futures edged up 0.15% vs. fair value. S&P 500 futures climbed 0.2%. Nasdaq 100 futures rose 0.45%.
U.S. crude oil prices fell more than 2%.
Stock Market Rally
The feeble stock market rally attempt had another weak session.
The Dow Jones Industrial Average closed up one point in Monday’s stock market trading, with UnitedHealth and TRV stock among the top performers. The S&P 500 index fell 0.7%. The Nasdaq composite tumbled 2%, with AAPL stock among the many drags. The small-cap Russell 2000 also lost 2%
Apple stock fell 2.7% to 150.62, hitting four-month lows and closing below its 200-day line for the first time in nine months. That follows its worst weekly loss in over a year. The relative strength line, reflecting AAPL stock’s performance vs. the S&P 500 index, also has hit a four-month low, though it’s still not far from highs.
U.S. crude oil prices tumbled 5.8% to $103.01 a barrel after briefly undercutting $100. Crude futures are continuing a sharp sell-off from late last week and the March 6 peak of $130.50. In addition to China’s Covid lockdowns weighing on energy and other commodities, the U.S. has been mulling whether to ease sanctions on Venezuelan crude oil.
The 10-year Treasury yield jumped 14 basis points to 2.14%, hitting its highest level since July 2020.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) slumped 2.8%, while the Innovator IBD Breakout Opportunities ETF (BOUT) fell 1.8%. The iShares Expanded Tech-Software Sector ETF (IGV) and VanEck Vectors Semiconductor ETF (SMH) both gave up 2.9%.
The SPDR S&P Metals & Mining ETF (XME) tumbled 5.75%, and Global X U.S. Infrastructure Development ETF (PAVE) dipped 0.6%. U.S. Global Jets (JETS) edged up 0.6%. SPDR S&P Homebuilders (XHB) gave up 1.1%. The Energy Select SPDR ETF (XLE) slumped 3%, and the Financial Select SPDR ETF (XLF) climbed 1.3%. The Health Care Select Sector SPDR Fund (XLV) rose 0.7%.
ARKK, Tesla Stock
Reflecting stocks with more speculative stories, the ARK Innovation ETF (ARKK) plunged 5.9% and ARK Genomics (ARKG) plummeted 6.2%, both to 22-month lows. In addition to the ongoing market correction and China shutdown concerns, fast-rising Treasury yields are bad news for highly valued growth stocks.
Tesla stock remains the No. 1 holding across Ark Invest’s ETFs. Tesla fell 3.6% to 766.37 on Monday, continuing to retreat from its 200-day line but still above its Feb. 24 low of 700. ARK also owns some XPEV stock. Xpeng plunged 14% to its lowest level since October 2020, not far from record lows.
Stocks To Watch
UnitedHealth stock rose 1.05% to 487.92. The health insurer has a double-bottom base with a handle. That gives UNH stock a 500.10 buy point. The RS line is at a record high. Several rivals are near buy points, with strong relative strength.
VRTX stock rose 2.2% to 241.68 on Monday. On Friday, shares rallied to 247.49, clearing a few days of resistance, but reversed to close down 2.25% at 236.48. Investors could choose to ignore Friday’s reversal day and buy Vertex stock above the March 4 high of 243.18, still close to the 10-week line. The RS line for VRTX stock is at a new high. The official flat-base buy point is 255.03, according to MarketSmith analysis.
Costco stock dipped 0.3% to 525.95. As of Monday’s close, the stock has a handle, giving it a lower official buy point of 545.39. COST stock is trading tightly, with its RS line at record highs.
Danaos stock fell 1.35% to 93.85. It’s technically just back in range from a prior buy point. It’s also arguably actionable from its 10-week line and from breaking a short trendline in a brief consolidation just above the prior cup base. Investors could wait for a base-on-base pattern to form or for DAC stock to retreat toward its 10-week line again. Danaos makes money by leasing its fleet of modern, large-size container ships to liner companies.
Travelers stock rose 2% to 177.18, clearing a three-weeks-tight entry at 175, albeit in below-average volume. That was part of a slightly longer stretch of tight action just above a long consolidation. Many insurance stocks have fared well in recent months as defensive plays benefit from rising interest rates.
Market Rally Analysis
The market rally attempt, already seriously ailing, suffered another massive blow as the Nasdaq undercut its Feb. 24 low, tumbling to its worst level in a year. That ends the Nasdaq rally attempt.
Technically, the market rally attempt is only mostly dead. The Dow Jones and S&P 500 index are still above their Feb. 24 bottoms.
Perhaps the Nasdaq will begin a new rally attempt now that it’s undercut recent lows. Or perhaps it’s beginning a significant new leg down in the ongoing market correction. Even if the Nasdaq does rebound from here, that doesn’t mean that old growth leaders will lead the next big uptrend, especially with interest rates trending higher.
There are few reasons to be positive right now. The advance-decline line has been woeful for months. New lows are obliterating new highs.
China’s Covid shutdowns add a major X Factor to a market environment already swirling with uncertainty. How is Wall Street supposed to price in Russia’s Ukraine invasion, China shutting down its economy and the Fed’s rate-hike policy, when any and all of those factors could quickly change?
Techs, the big losers in the market correction, were joined by the commodity sector on Monday. That could be a brief, sharp pullback for oil and metals prices or something more serious.
Financials, especially those that are rate sensitive but not yield curve sensitive like TRV stock, did reasonably well. A number of medicals are doing OK, including UNH stock and Vertex. But it’s hard to have any confidence in any stock or group given the current market conditions.
What To Do Now
The stock market is highly dangerous. Obviously, the bulk of the market has been struggling for months. But even energy and commodity plays are looking risky. It’s a volatile market correction, with no real safe havens. The downside risks are still huge, while the upside rewards are dubious for now.
Investors should be nearly all or entirely in cash. If you have winning stocks, take profits on them quickly.
At some point, the stock market will have a sustained confirmed uptrend. That’s when investors make money. Don’t wreck your fiscal capital and mental capital in a market correction.
Build your watchlist. Stay alert and remain patient.
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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