Dow Jones futures tilted higher early Wednesday, along with S&P 500 futures and Nasdaq futures. FedEx (FDX) reported after the close, with Fed chief Jerome Powell set to testify before Congress on Wednesday.

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The stock market rally saw losses for a second straight session. The Nasdaq and even the S&P 500 had been getting extended, so a pullback wasn’t a surprise and may even be welcome. The major indexes gave up ground grudgingly, especially the Nasdaq, with Tesla (TSLA) and Nvidia (NVDA) continuing to move higher.

Market breadth was weak Tuesday, but has been improving.

Meritage Homes (MTH) reclaimed a buy point Monday, while Allegro MicroSystems (ALGM) and Lantheus Holdings (LNTH) flashed early entries. ELF Beauty (ELF) presented a tight entry. ATI (ATI) is moving toward a possible entry.

Buying stocks with the market potentially starting a pullback carries extra risk, however.

Tesla and Nvidia stock are on IBD Leaderboard, with ELF stock on the Leaderboard watchlist. ELF Beauty and ALGM stock are on the IBD 50. Tesla stock is on the IBD Big Cap 20. Meritage Homes was Tuesday’s IBD Stock Of The Day.

Fed Chief Powell

Fed chief Jerome Powell will speak to the House Financial Services Committee on Wednesday at 10 a.m. ET, then appear before the Senate Banking Committee on Thursday. Last week, the Fed left interest rates steady, but signaled two more rate hikes are coming this year. Markets largely expect a hike in either July or September, but see scant chance of a second hike by year-end. Fed chief Powell, along with several other policymakers this week, could try to bolster expectations of a second hike. But Powell was relatively dovish in his post-meeting comments last week. In any case, inflation reports and other economic data in the coming weeks and months will tell the tale.

Dow Jones Futures Today

Dow Jones futures were slightly above fair value. S&P 500 futures and Nasdaq 100 futures edged higher.

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

FedEx Earnings

FDX stock declined 3% in extended trade after FedEx earnings narrowly beat fiscal Q4 views while revenue missed. The shipping giant also gave 2024 EPS guidance that was largely below views. FedEx stock dipped 0.8% to 231.65 in Tuesday’s regular session, just below a 235.81 buy point from a flat base that’s part of a base-on-base formation. Shares just topped that entry last Thursday.

United Parcel Service (UPS) fell 1% overnight. UPS stock edged down 0.7% on Tuesday, trading around its 50-day line and 200-day, far below its February 2022 peak.


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Stock Market Rally

The stock market rally opened with decent losses, but came off lows after the first hour of trading.

The Dow Jones Industrial Average lost 0.7% in Tuesday’s stock market trading. The S&P 500 index declined 0.5%. The Nasdaq composite gave up less than 0.2%. The small-cap Russell 2000 fell 0.5%.

U.S. crude oil prices fell 1.8% to $70.50 a barrel. The 10-year Treasury yield fell 4 basis points to 3.73%.

ETFs

Among growth ETFs, the Innovator IBD 50 ETF (FFTY) edged up 0.2%. The iShares Expanded Tech-Software Sector ETF (IGV) slid 1%. The VanEck Vectors Semiconductor ETF (SMH) edged down 0.35%. NVDA stock, the No. 1 major SMH holding, climbed 2.6%, hitting a fresh record high.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) dipped 0.1% and ARK Genomics ETF (ARKG) edged up 0.35%. TSLA stock, the No. 1 holding across Ark Invest’s ETFs, raced 5.3% higher on strong China EV sales and another U.S. charging tech deal, this time with Rivian (RIVN).

SPDR S&P Metals & Mining ETF (XME) fell 0.5%. U.S. Global Jets ETF (JETS) descended 0.3%. SPDR S&P Homebuilders ETF (XHB) stepped up 0.6%. The Energy Select SPDR ETF (XLE) slumped 2.2% and the Health Care Select Sector SPDR Fund (XLV) nudged 0.1% lower.

The Financial Select SPDR ETF (XLF) gave up 0.75%. The SPDR S&P Regional Banking ETF (KRE) retreated 1.3%.


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Stocks Near Buy Points

Meritage Homes rose 2% to 132.89, back above a 130.68 buy point from a flat base, according to MarketSmith analysis. MTH stock has been trading around that entry for the past two weeks. Surprisingly strong housing starts helped buoy homebuilder stocks.

Allegro Micro stock popped 4% to 41.76. Shares rebounded from their 50-day line, broke a trendline in its consolidation and topped short-term resistance. ALGM stock did all this in higher volume.

Lantheus stock jumped 5.2% to 92.87, moving strongly above the 50-day line. LNTH stock has an emerging consolidation with a possible 100.85 buy point. But Tuesday offered an early entry. Medical products firms have revived in the past several sessions

ELF stock rose 3% to 107.19, clearing a 108.43 three-weeks-tight entry intraday and setting a new closing high. That offered a place for existing investors to add a few more shares.

ATI stock climbed 2.7% to 40.36. The specialty alloys play has a 43.32 consolidation buy point on a daily chart, but is working on a possible handle. On a weekly chart, the handle is there, giving ATI stock a lower buy point of 41.

Market Rally Analysis

The stock market rally retreated modestly again on Tuesday, but the major indexes came well off intraday highs. The Nasdaq, which has been extended, barely fell at all.

Megacap growth. In addition to Tesla stock and Nvidia, Apple (AAPL), Meta Platforms (META), Amazon.com (AMZN) and Netflix (NFLX) all advanced.

The broader market suffered losses, but in a normal, healthy fashion. Losers outpaced winners significantly, but the overall trend has been favorable.

The First Trust Nasdaq 100 Equal Weighted Index ETF (QQEW) fell 0.9%, but never touched its 10-day line.

The Invesco S&P 500 Equal Weight ETF (RSP) also gave up 0.9%, finding support at the 10-day line and near its April peak.

The Nasdaq composite is still 8.6% above its 50-day line, with the Nasdaq 100 9.9% above that line, both significantly elevated.

A few buying opportunities arose Tuesday, such as Meritage and ALGM stock. As always, market and sector performance will be key to how such stocks fare going forward.

A market pause or pullback would let leading stocks find support at key moving averages or perhaps consolidate around traditional buy points, creating new entries. Other potential leaders, such as ATI stock, are trying to forge handles.

Look at indexes or ETFs such as the Dow Jones, QQEW, RSP, XLI to get an idea of how pauses or pullbacks would translate into individual names.

Of course, some stocks will lag or even breakdown in a modest pullback. Some of these stocks may have been laggards in recent weeks, but that isn’t always obvious when the market is running higher.


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What To Do Now

A modest pullback still seems to be the most plausible scenario for the stock market rally in the near term. The alternatives are sideways action, a more-serious slide or renewed market strength that almost immediately pushes the Nasdaq to more-extreme levels again. None of those scenarios seems particularly bullish for new buys, especially tech plays.

If you do make new or add-on buys in the current climate, be ready to step back quickly. You can consider taking some partial profits in some extended names, though that depends on the size of your position, your overall exposure and your investing style.

Continue to build watchlists. A large number of stocks need some time to forge new entries, but you want to be ready to pounce.

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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