Dow Jones futures fell Sunday evening, along with S&P 500 futures and Nasdaq futures. The stock market correction worsened, though the slim-to-modest weekly losses belie the volatile sell-off late in the week as Treasury yields spiked. The Nasdaq undercut a rally attempt and hit its worst levels since 2020.
Key inflation reports are on tap this week. That could be a market catalyst either way. While a rally attempt is still technically underway on the S&P 500 and Dow Jones, the market correction isn’t showing many signs of a bottom.
Eli Lilly (LLY), Albemarle (ALB), Dollar Tree (DLTR), ZIM Integrated Shipping (ZIM) and new IPO Excelerate Energy (EE) are five stocks worth watching, either in buy zones, near buy points or simply flexing relative strength.
Relative strength is important, but in a market correction, relative winners can be “absolute losers.” Apple (AAPL) is a great example. Its relative strength line is at record highs, but AAPL stock has fallen for six straight weeks.
LLY stock and ZIM are on the IBD 50.
The video embedded in the article discussed the volatile market week in depth, and also analyzed DLTR stock, Excelerate Energy and Apple.
Dow Jones Futures Today
Dow Jones futures fell 0.6% vs. fair value. S&P 500 futures lost 0.7% and Nasdaq 100 futures slumped 0.9%.
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 started off with solid gains that ended abruptly on Thursday, as the Nasdaq plunged 5% that day.
The Dow Jones Industrial Average dipped 0.2% in last week’s stock market trading. The S&P 500 index edged down 0.2%. The Nasdaq composite lost 1.5%. The small-cap Russell 2000 slumped 1.3%.
The 10-year Treasury yield surged 24 basis points to 3.12%, with nearly all of that gain coming in a delayed reaction to Wednesday’s Federal Reserve meeting. The 10-year yield is racing toward an 11-year high of 3.25% from October 2018.
U.S. crude oil futures jumped 4.9% to $109.77 a barrel this past week.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) sank 2.4% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) popped 3.3%. The iShares Expanded Tech-Software Sector ETF (IGV) slid 4.9% as investors slammed software. The VanEck Vectors Semiconductor ETF (SMH) rose 1.2%.
SPDR S&P Metals & Mining ETF (XME) skidded 3.65% last week, as steelmakers followed miners in breaking key support. The Global X U.S. Infrastructure Development ETF (PAVE) retreated 1.4%. U.S. Global Jets ETF (JETS) slumped 4.9%. SPDR S&P Homebuilders ETF (XHB) edged up 0.1%. The Energy Select SPDR ETF (XLE) soared 10.3%. The Financial Select SPDR ETF (XLF) rose 0.6%. The Health Care Select Sector SPDR Fund (XLV) dipped 0.4%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) sank 3.25% last week and ARK Genomics ETF (ARKG) 3.8%, both to 25-month lows. Notably ARKK saw record inflows as recently as Tuesday, despite the ETF’s huge decline since early 2021.
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Eli Lilly Stock
Eli Lilly stock continued to trade around its 21-day line last week, finding support at its 10-week line. Shares rose 1.6% to 296.90 last week. LLY stock is in range from a 284 buy point from a cup base. Shares have also broken above a short trendline, using Wednesday’s high of 296.28 as a trigger. Or, you could wait to see if LLY stock forges a new base, offering a buy point in hopefully better market conditions.
The RS line continues to hit new highs even with LLY stock off its early April peaks.
ALB stock shot up 26% to 242.41 last week, fueled by strong earnings and guidance from Livent (LTHM) and then Albemarle itself. The lithium giant has vaulted above its 50-day and 200-day lines and broke a trendline. That would have offered an early entry in a better market. Currently, ALB stock is working on a deep cup base with a 291.58 buy point. But perhaps Albemarle could form a handle, right around key resistance at 248.
Dollar Tree Stock
Dollar Tree stock has pulled back to its 50-day/10-week lines for the first time since its early March breakout. DLTR stock tried to bounce on Friday, though in light volume. A slightly stronger move, ideally in higher volume, would offer an early entry. Dollar Tree stock appears to be the leader among discount retailers right now.
The RS line for DLTR stock is right at highs.
ZIM stock vaulted 19% to 66.16 last week, surging to reclaim its 50-day line. That’s after bottoming from 48.21 in the prior week, testing its 40-week line. The high-dividend shipping play now has a cup base with a 79.05 buy point. Ideally, ZIM stock would move a little higher, than forge a handle heading into earnings on May 18.
ZIM is an ocean-going container ship play, but it recently chartered three LNG ships as well.
Excelerate Energy is a rare IPO in 2022. Shares priced at $24 a share in the first half of April, reversed lower from a record 29.10 on April 18 to a low of 22.65 on April 22. EE stock now has an IPO base with a 29.20 buy point, according to MarketSmith analysis. Shares tried to break a downward-sloping trendline on Friday before paring gains to close at 26.90. A move above Friday’s high of 27.38 would offer an early entry.
The RS line, the blue line in the charts provided, is already at a new high.
Excelerate Energy operates floating liquefied-natural-gas terminals. It’s already profitable, with earnings expected to skyrocket 726% in 2022 as overseas demand for LNG booms.
Finally, Apple stock sold off hard Thursday after briefly flashing an early entry on Wednesday. Shares extended a weekly losing streak, though the 0.2% decline to 157.28 wasn’t much. The RS line for AAPL stock is right at a record high on a weekly chart. That’s a reflection of how weak the S&P 500 has been since the end of March. But it’s also a reminder of how relative winners can be absolute losers in a market correction.
Still, Apple stock is worth watching as one of the only tech or growth names showing any kind of resilience. If it can hold up in the Nasdaq bear market, it could be a leader in the next sustained uptrend.
Market Rally Analysis
The stock market had a stomach-churning roller-coaster ride over the past week. After starting a rally on Monday and surging on Wednesday, the major indexes dived Thursday, then lost more ground Friday intraday.
The Nasdaq plunged to its lowest levels since 2020, wiping out its rally attempt on Thursday and briefly undercutting 12,000 on Friday. The Russell 2000 also sank to late 2020 levels on Friday.
The S&P 500 nearly undercut Monday’s lows on Friday.
The market rally attempt is still alive on the S&P 500 and Dow Jones. So they could stage a follow-through day at any point.
Arguably, the stock market could use another big shakeout to trigger capitulation selling. Fear gauges are near recent highs, but haven’t blasted above 2022 peaks. The continued flows into ARKK and other growth funds also signal that “buy the dip” is still in force.
New lows continue to dominate new highs, especially on the Nasdaq. Market breadth is grim. That’s been a problem for the past year. But in 2022, Apple stock and other megacaps are no longer masking that underlying weakness.
Commodity plays are still a bright spot, especially oil and gas names. Fertilizer names are trying to hold around their 50-day moving averages. Lithium plays are coming back into focus, while wood products and building materials look interesting. Meanwhile, health insurers continue to look strong as well as some drugmakers such as LLY stock, but the leadership in medicals has narrowed.
Meanwhile, steelmakers are breaking support, looking to join gold and base metal miners. Heavy construction firms also have slumped in recent weeks. And while oil and gas plays are strong, uranium and solar stocks have fallen hard in the past few weeks.
The Labor Department releases the April consumer price index on Wednesday and the producer price index on Thursday. Economists expect CPI and PPI inflation to cool somewhat, helped by tougher year-over-year comparisons. But the Fed would likely need several months of improving inflation data before curbing aggressive rate hikes.
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What To Do Now
Investors should be in all cash or nearly so. The exceptions would be small exposure to leading sectors or long-term holdings with major gains.
As Thursday’s stunning sell-off showed, the market can sell off much faster and deeper than it rallies. So if you do have exposure, be quick to take partial profits and be ready to cut losses quickly.
Don’t try to guess the market bottom. You’ll eventually be right, but how many possible bottoms have there been in the past several months?
For now, keep your powder dry and your mind fresh — and work on your watchlists.
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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