Market rally regains key levels ahead of CPI inflation report; Medpace, first solar flash buy signals

Dow Jones futures edged higher after hours, along with S&P 500 futures and Nasdaq futures.

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Stock market gains were indecisive for most of Tuesday, but the major indexes gained momentum and the S&P 500 moved above its 50-day moving average. Investors await the December CPI inflation report on Thursday morning.

Medpace (MEDP) rallied solidly on Tuesday, flashing another buy signal after a similar move played out at the end of 2022. First Solar (FSLR) rebounded from its 50-day line, which also provided an early entry. But ELF beauty (PIXIE) and Super micro computer (SMCI) tumbled after Monday’s twists and turns.

MEDP shares and ELF Beauty are on IBD Leaderboard. SMCI stock is on IBD 50. Medpace was Tuesday’s Today’s IBD stock.

Tesla (TSLA) and UnitedHealth (UNH) edged lower as many big caps continue to struggle.

Investors should remain cautious, especially with the CPI inflation report looming.

Business news

In the meantime Wells Fargo (WFC) will largely exit the mortgage business under regulatory pressure, CNBC reported late Tuesday. It will only offer home loans to existing banking and wealth management customers and borrowers in minority communities. WFC shares were little changed in extended trade.

Axcelis Technologies (ACLS), which made a strong move over the past several sessions, said revenue for the fourth quarter ended in December topped $250 million, compared with the chip-equipment maker’s previous guidance of $232 million to $240 million. ACLS stock edged higher after hours.

Imp (PI) says Q4 sales topped $76 million, versus the RFID chip maker’s previous guidance of $71.5 million-$73.5 million. PI stock, already slightly above the 50-day line, rose solidly overnight. It could offer an early entry or get close to Impinj stock’s flat buy point. PI shares are also on the Leaderboard.

Earnings season also begins to ramp up at the end of the week. Taiwan Semiconductor (TSM) reports Thursday morning. On Friday, JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C) and Wells Fargo all report before the open, along with Delta Air Lines (VALLEY) and UnitedHealth.

Dow Jones Futures Today

Dow Jones futures rose 0.1% against fair value. S&P 500 futures rose 0.1% and Nasdaq 100 futures edged higher.

The 10-year Treasury yield fell 3 basis points to 3.59%.

Crude oil futures fell lower.

Remember the action overnight Dow futures and elsewhere does not necessarily translate into actual trading in the next regular stock market session.

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Stock market rally

After Monday’s disappointing fade, the stock market rally strengthened on Tuesday afternoon and closed near session highs.

The Dow Jones Industrial Average rose 0.6% on Tuesday stock exchange trading. The S&P 500 index rose 0.7 per cent. The Nasdaq composite rose 1 per cent. Small-cap Russell 2000 rose 1.5%

Tesla shares fell 0.8% after jumping 5.9% on Monday. Shares turned higher on Friday after hitting a bear market low of 101.06 after the EV giant announced big price cuts in China and other key Asian markets. TSLA stock needs a lot of repair.

Tesla has applied to Texas for a major expansion of its Austin assembly plant, the Austin Business Journal reported late Tuesday. Tesla Austin is still increasing its existing capacity.

UNH shares fell 0.8%, hitting their worst levels since last June. The Dow Jones health insurance company is down 8.3% already in 2023, after finishing 2022 in reasonably good shape. UnitedHealth’s earnings and guidance Friday will be important for the suddenly battered sector.

U.S. crude oil prices rose 0.7% to $75.12 a barrel. barrel. Natural gas prices fell 6.9 per cent.

The 10-year Treasury yield rose 10 basis points to 3.62% after sliding 20 basis points in the previous two sessions.

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ETFs

Among growth ETFs is the Innovator IBD 50 ETF (FFTY) rose 1.1%, while the Innovator IBD Breakout Opportunities ETF (BOUT) increased by 0.15 per cent. iShares Expanded Tech-Software Sector ETF (IGV) achieved an increase of 0.1%. VanEck Vectors Semiconductor ETF (SMH) rose 1.3% and just topped the 200-day line after clearing the 50-day on Friday. The TSM stock is a large SMH holding.

Reflecting more speculative history stocks, the ARK Innovation ETF (SHEET) jumped 2.5% and the ARK Genomics ETF (ARKG) 3.6%. Tesla shares remain a large holding at Ark Invest, with Cathie Wood strengthening her position in recent weeks.

SPDR S&P Metals & Mining ETF (XME) rose 2.5% and the Global X US Infrastructure Development ETF (POPE) rose 1.6%. US Global Jets ETF (JETS) rose 2.4%, with DAL shares among the notable holdings. SPDR S&P Homebuilders ETF (XHB) increased by 1 per cent. Energy Select SPDR ETF (XLE) rose 0.7% and the Financial Select SPDR ETF (45) increased by 0.6 per cent. Health Care Select Sector SPDR Fund (XLV) closed up 0.8%, with UNH stock a top XLV holding.

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Analysis of market rally

The stock market rally spent most of the morning around break-even, but ended Tuesday with a relatively strong performance.

The S&P 500 rose above the 50-day mark. The 200-day average is modestly above that.

The Dow Jones rebounded from a test of its 50-day line after moving above that key level on Friday. The Nasdaq rose from its 21-day line with the 50-day line not far off.

The Russell 2000 is back above its 50-day line, just below its 200-day.

The S&P MidCap 400 rose on Tuesday after finding support at the 50-day. That’s after jumping above its 21-day, 50-day and 200-day lines on Friday. Invesco S&P 500 Equal Weight ETF (RSP) is quite similar.

RSP and MidCap 400 highlight how large caps such as Apple (AAPL), Tesla and UNH shares have weighed on the market.

A sustained stock market rally may not take hold until there is clarity on when the Federal Reserve will stop raising interest rates. Markets strongly expect just a quarter-point increase at the policy meeting on February 1 and again at the end of March.

Thursday’s CPI inflation report could lock in expectations for a quarter-point increase. Inflation should continue to trend lower in the coming months, if only because the year-over-year comparisons are so steep.

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Leading stocks mixed

A number of leading stocks have flashed buy signals in recent days and weeks. But most have quickly faltered. In some cases, such as MEDP shares, they return a few days later.

Medpace jumped 5.9% to 223.29 on heavy volume, rebounding from the 50-day line and clearing its Dec. 29 high as MEDP tried to pull out.

First Solar rose 7.4% to 171.01, continuing a mini-winning streak. The move from the 50-day line offered an early entry into a new base, but now looks a bit extended. But the official buy point of 173.78 is not far away.

Other names keep tumbling.

ELF stock had a promising breakout on Friday, but gave up most of those gains on Monday and fell 8.3% on Tuesday to 51.15, nipping below the 50-day line and below the low of its flat base.

SMCI stock rose Monday morning and offered an early entry, but closed only a fraction higher. On Tuesday, shares fell 7.55%, below the 50-day mark, following a short-seller report.

Many other stocks are hovering right around potential buy points.

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What should I do now

The stock market rally is still in effect, but the major indexes, sectors and especially leading stocks are likely to return. Thursday’s CPI inflation report could trigger big gains, with the major indexes pushing decisively above some key levels. But it could also go the other way.

Investors should be careful with their exposure and be wary of new purchases, especially before the CPI report.

If you are making new purchases, you need to know your exit strategy before you go in. Consider taking partial profits quickly to lock in some gains.

This is still a window shopping market. But there are a lot of exciting stocks to watch from a variety of sectors. Get those watch lists ready.

Read The big picture every day to stay in sync 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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