Dow Jones Futures: CPI Inflation Report Due After S&P 500 Breach at Key Level

Dow Jones futures rose slightly on Thursday, along with S&P 500 futures and Nasdaq futures, after a tough day for the S&P 500 and stock market rally. All eyes will turn to the October CPI inflation report.

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The stock rally lost ground on Wednesday, with the S&P 500 back below its 50-day moving average. Mixed election results, Bitcoin’s continued woes, renewed shutdowns in China — and the looming CPI — were possible contributors.

Bitcoin plunged to new two-year lows as Binance, the world’s largest cryptocurrency exchange, said on Wednesday afternoon that it would not buy rival FTX.

Megacaps didn’t help. Tesla ( TSLA ) plunged below key levels to a two-year low on Wednesday, with a long-running bull Thursday decrying the “Twitter circus” effect on the Tesla brand. Amazon.com (AMZN) also set new lows in the bear market. apple (AAPL) had its worst performance since June, while Microsoft (MSFT) and Google parent Alphabet (GOOGL) fell slightly.

Facebook parent Meta platforms (META) was the exception, picking up after announcing job and spending cuts. But key suppliers fell.

Key income

Catalyst Pharmaceuticals (CPRX), Excelerate energy (EE), Celsius Holdings (CELH) and Rivian (TORN).

CPRX stock rose modestly in premarket action as Catalyst Pharma beat EPS and earnings views. Biotechnology also saw sales in the fourth quarter in line with consensus. Catalyst stock fell 5.35% on Wednesday, back to around an early entry.

CELH shares jumped overnight on strong Celsius earnings growth after the energy drink maker fell on Wednesday to its lowest level since July. Rivian stock rebounded on mixed third-quarter results after falling to a four-month low Sure (LCID) results.

EE stock not trading after Excelerate earnings topped views. Excelerate shares skidded on Wednesday, testing the 50-day line.

early Thursday, Nine (NIO) reported a bigger-than-expected loss early Thursday, but earnings topped out. The Tesla China EV rival also gave conservative Q4 guidance on deliveries amid recent Covid-related production issues. The Nio share rose modestly in pre-market trading. Shares fell to a two-year low on Wednesday as southern manufacturing hub Guangzhou announced Covid shutdowns, knocking down many Chinese shares.

Meanwhile, network company Digi International (DGII) is also in print this morning. DGII stock pulled back toward its 50-day line on Wednesday as it works on a rising buy point.

CPI Inflation Report

The Consumer Price Index for October will be released at 8:30 a.m. ET on Thursday. Economists expect the CPI inflation report to show that prices rose 0.7% compared to September. Core CPI, which excludes food and energy, should rise 0.5%.

Annual CPI inflation should decline to 8% from September’s 8.2%. Core inflation is kept stable at 6.6%.

The Federal Reserve wants to see clear and convincing evidence that inflation is slowing before ending interest rate hikes. The markets are slightly leaning towards a 50 basis point rate hike by the Fed in December, but there is still a strong chance of a fifth consecutive 75 basis point hike. The November employment data and CPI report will be released before the December Fed meeting and announcement.

Dow Jones Futures today

Dow Jones futures rose 0.1% relative to fair value. S&P 500 futures rose 0.2% and Nasdaq 100 futures rose 0.4%.

The 10-year government yield fell 6 basis points to 4.09%.

Bitcoin traded above $16,000, off Wednesday afternoon’s two-year low.

Crude oil prices fell slightly while natural gas rose.

Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session.

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

Stock market rally

The stock rally opened mixed on Wednesday, but then lost ground, especially in the afternoon, and ended at session lows.

The Dow Jones Industrial Average fell nearly 2% in Wednesday’s trading. The S&P 500 index fell 2.1 percent. The Nasdaq composite slipped 2.5%. The small-cap Russell 2000 fell 2.7%.

The 10-year government yield rose 2 basis points to 4.15%.

The dollar had a strong session, after a big decline over three days.

US crude oil prices fell 3.5% to $85.83 a barrel. Weekly US crude inventories rose the most in a month. Meanwhile, shutdowns in China raised concerns about crude oil demand there. US natural gas futures retreated 4.5%.

Bitcoin

Bitcoin plunged again as Tuesday’s tentative deal to buy FTX fell apart, and Binance walked away after looking at its competitor’s books. “Our hope was to be able to support FTX’s customers in providing liquidity, but the issues are beyond our control or ability to help,” Binance said in a statement Wednesday afternoon.

FTX, which earlier this year appeared to be a potential savior for ailing crypto firms, is now in danger of collapsing.

Bitcoin plunged to as low as $15,554.48, its worst in two years. The pioneer cryptocurrency broke below $20,000 on Monday alone. Other major cryptos like Ethereum also continue to sell off, along with crypto-related stocks.

ETFs

Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) fell 4.2%, while the Innovator IBD Breakout Opportunities ETF ( BOUT ) returned 1.8%. The iShares Expanded Tech-Software Sector ETF ( IGV ) fell 2.2%, with Microsoft shares a key component. The VanEck Vectors Semiconductor ETF ( SMH ) retreated 2.7%.

ARK Innovation ETF ( ARKK ) reflected more speculative stock stocks, falling 6.5% and ARK Genomics ETF ( ARKG ) 4.3%. Tesla stock is a large holding across Ark Invest’s ETFs.

The SPDR S&P Metals & Mining ETF ( XME ) fell 5.4% and the Global X US Infrastructure Development ETF ( PAVE ) lost 2.1%. The US Global Jets ETF (JETS) fell around 1%. The SPDR S&P Homebuilders ETF ( XHB ) fell 1.75%. The Energy Select SPDR ETF (XLE) sold off 4.9% and the Financial Select SPDR ETF (XLF) fell 1.7%. The Health Care Select Sector SPDR Fund ( XLV ) was down 1.1%.

Top five Chinese stocks to watch now

Tesla shares

Tesla shares plunged 7.2% to 177.59, below 2021 lows. Late Tuesday, Elon Musk revealed that he sold nearly $4 billion worth of TSLA stock on Nov. 4, 7, and 8, possibly to help finance his Twitter takeover. The revelation could lift an overhang over TSLA stock, although Musk has not yet said he is done with his latest batch of stock sales.

Elon Musk’s Twitter takeover has a wider impact. It takes up a lot of his time, and there are concerns that his Twitter moves and tweets will damage Elon Musk’s brand, and perhaps Tesla’s as well. At a Twitter Spaces event Wednesday, Musk talked up subscriptions and added save-and-pay features, but did little to win back wary advertisers.

Tesla may also fall along with other China-exposed stocks in the wake of increased shutdowns there. Furthermore, many US and Chinese EV stocks suffered double-digit losses on Wednesday, including Nio, Lucid and RIVN shares.

Finally, Tesla still owns some Bitcoin.

Late Wednesday, President Biden, responding to the question of whether Musk is a national security risk, said, “It’s worthy of being looked at,” adding that there are “many ways” to do that.

TSLA stock compared modest premarket gains as Wedbush analyst Dan Ives cut his price target to 250 from 300 and pulled Tesla from his “Best Ideas” list. He said that “the Twitter circus show is slowly starting to affect Tesla’s pristine EV brand, and this could affect demand down the road.”

Tesla vs. BYD: Which EV giant is the best buy?

Other Megacap stocks

Meta Platforms will cut 11,000 jobs, or 13% of its workforce. The Facebook parent will also curb spending on infrastructure as investors balked at huge metaverse costs. META shares fell 5.2%, but spending restrictions hit Arista Networks (A WEB), Nvidia (NVDA) and other vendors benefiting from the metaverse splurge.

Apple shares fell 3.3% to 134.87. Although the iPhone maker hasn’t undermined its October intraday lows or the bottom of the June 16 bear market, AAPL stock closed at its worst level since June 17. Earlier this week, Apple warned that China’s Covid restrictions will hurt production of the iPhone 14 Pro.

Amazon shares gave up 4.3%, falling to their lowest point since March 2020. MSFT shares fell 1.9%. Google shares fell 1.8%. But both are still up a bit for the week.

Market rally analysis

Just when the stock market rally seemed to pick up speed again, sales returned on Wednesday. The Dow Jones retreated to just below its 200-day line. The S&P 500 fell back below its 50-day moving average. The Russell 2000 also broke below the 50-day mark.

The lagging Nasdaq retreated after hitting resistance at the 21-day line on Tuesday.

Treasury yields rose, but not by much. The dollar rebounded but is in a recent downtrend. Still inconclusive election results, suggesting less of a GOP wave than expected, may have played a role. Bitcoin’s dive, shutdowns in China and often negative earnings reactions contributed.

Ultimately, the market rally has been under pressure for the past week. The S&P 500 is above the 50-day line is a minimum level of market strength. For the Nasdaq to move above this key level would be an even stronger signal.

The October CPI report could set the tone for Fed rate hike expectations, and perhaps market direction, for at least a couple of weeks.

Time the market with IBD’s ETF market strategy

What to do now

The market rally is limited, however, with the Dow near recent highs and the Nasdaq near bear market bottoms. A volatile, sideways market is extremely dangerous for investors.

A strong bull market generally lifts all boats. A bear market lowers them, driving everyone to dry ground. But choppy market waters will do just enough to tempt investors with mini-runs for the indices and strong gains for individual stocks. But after buying near the short-term peak, investors are caught in the undercurrent as stocks fall back. This can go on and on, with investors taking a bunch of small losses or some very large ones.

It is OK to make some test buys and hold positions if they work, although you may consider taking at least partial profits quickly in this environment. But investors should wait for the market rally to show sustained strength before gaining significant exposure.

But it is important to stay engaged. Investors should have a game plan and execute if the market or individual holdings break lower or higher. Update your watchlists so you’re ready to take advantage of the next real bull market rally.

Read The Big Picture every day to stay in sync with market direction and leading stocks and sectors.

Follow Ed Carson on Twitter at @IBD_ECarson for stock exchange updates and more.

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