Dow Jones Futures Fall After Market Rallies; Here Comes Fed Chief Powell

Dow Jones futures fell solidly early Wednesday, along with S&P 500 futures and Nasdaq futures, with Fed chief Jerome Powell set to testify before Congress on Wednesday morning.

But few quality stocks are in position right now. That's just one of many reasons to remain on the sidelines. While a rally attempt is underway, it's not a confirmed uptrend yet.

The 10-year Treasury yield fell 4 basis points to 3.27%.

U.S. crude oil prices tumbled more than 3%. President Joe Biden is expected to back suspending the federal gasoline tax of 18.4 cents per gallon on Wednesday afternoon. Congress would have to approve any such move.

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

Fed Chief Powell Testifies

Fed chief Powell testifies on monetary policy before the Senate Banking Committee on Wednesday morning. Powell will appear before the House Financial Services Committee on Thursday.

It's unclear if Powell will break new ground from last week. On June 15, the Federal Reserve hiked interest rates by 75 basis points, with the Fed chief saying either 50 basis points or 75 basis points is on the table for the late July policy meeting. Markets have almost fully priced in another three-quarter-point rate hike.

Fed chief Powell testifies at 9:30 a.m. ET, right at the opening bell, though the Federal Reserve may release his prepared remarks earlier.

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Stock Market Rally Tuesday

The stock market rally attempt had a strong session. The Dow Jones Industrial Average climbed 2.15% in Tuesday's stock market trading. The S&P 500 index rose 2.45%. Tesla, Exxon and UNH stock were among the best S&P 500 performers, with the latter two names also Dow giants. The Nasdaq composite rallied 2.5%. The small-cap Russell 2000 advanced 1.8%.

The expiring July crude oil futures contract rose 1% to $110.65 a barrel, off intraday highs. August crude gained 1.4% to $109.52.

The 10-year Treasury yield rose 7 basis points to 3.31%.

Stock Market Forecast For The Next Six Months

ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) gained 3.3%, while the Innovator IBD Breakout Opportunities ETF (BOUT) gained 2%. The iShares Expanded Tech-Software Sector ETF (IGV) advanced 1.9%. The VanEck Vectors Semiconductor ETF (SMH) was up 2.8%.

SPDR S&P Metals & Mining ETF (XME) rose 1.6% and the Global X U.S. Infrastructure Development ETF (PAVE) was up 1.1%. U.S. Global Jets ETF (JETS) edged up 0.8%. SPDR S&P Homebuilders ETF (XHB) moved 0.4% higher. The Energy Select SPDR ETF (XLE) rebounded 4%, with XOM stock a huge component, and the Financial Select SPDR ETF (XLF) was up 1.5%. The Health Care Select Sector SPDR Fund (XLV) ascended 2.3%, with UNH stock the top holding and Eli Lilly also a notable component.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) rose 4.4% and ARK Genomics ETF (ARKG) 3%. Tesla stock remains a major holding across Ark Invest ETFs.

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LNG Stock

Cheniere Energy stock rose 5.5% to 132.95, moving close to its 50-day moving average. On Friday, LNG stock undercut several months of trading, but then rallied higher in heavy volume. The LNG play is working on a consolidation with a 150.10 buy point, though there may be early entries. Several other LNG plays also rebounded back toward their 50-day line.

XOM Stock

Exxon stock popped 6.3% to 91.51, reclaiming its 50-day moving average and an arguably still-valid 89.90 cup-with-handle buy point. XOM stock ran up to 105.57 on June 8, but soon gave up recent gains, plunging 14% last week.

Ideally, Exxon Mobil would move sideways and start to form a new consolidation before making a big advance.

On Tuesday, Exxon Mobil joined a $29 billion Qatari natural gas project. Other partners include ConocoPhillips (COP), Eni (E) and TotalEnergies (TTE). Meanwhile, Credit Suisse upgraded its rating on Exxon stock to Outperform with a $125 price target.

LLY Stock

Eli Lilly stock climbed 2.2% to 297.35, closing a hair below the 50-day line. A prior 314.10 buy point from a flat base/base-on-base structure is no longer valid. LLY stock is working on a new consolidation. A break above a short downward-sloping trend line would offer an entry of around 306.

Bristol Myers Squibb (BMY), Vertex Pharmaceuticals (VRTX) and Harmony Biosciences (HRMY) are showing positive action.

Li Auto Stock

LI stock spiked 7.85 to 35.75 on Wednesday, the highest close since January 2021. Li Auto stock nearly broke out past a 37.55 buy point from a 55%-deep consolidation. Ideally, LI stock would form a handle, the longer the better, digesting its huge recent gains.

China's Li Auto on Tuesday unveiled the L9, a new hybrid SUV. It's more expensive than the Li One, which already is in the premium segment.

Nio (NIO) shot up 9.2% and Xpeng (XPEV) 6.8%, as both continue rebounds above their 50-day line but below their 200-day averages. EV and battery giant BYD (BYDDF) gained 3.2% to 38.60, working on a 39.81 cup-with-handle buy point on a weekly chart.

Tesla stock leapt 9.35% to 711.11, just regaining its 21-day moving average in heavy volume. But the 50-day and 200-day lines are key hurdles. TSLA stock came close to undercutting its late May lows last week, but did not.

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Northrop Stock

NOC stock rose 4.5% to 463.77, reclaiming its 21-day and 50-day lines. Northrop stock fell solidly in the prior two weeks, failing a cup-with-handle breakout. A new consolidation could be starting to form. A decisive move over the 50-day line could offer an early entry.

UnitedHealth Stock

UNH stock jumped 6.25% to 480.32, rebounding back above the 200-day moving average. Shares closed right around a downward-sloping trendline. Any strength from this point could offer an early entry into UnitedHealth stock. However, investors could look to 507.35 as a double-bottom buy point, which would also push UNH stock above the 50-day line.

Dollar General Stock

DG stock gained 3.5% to 238.97, back above the 50-day line and nearing a 240.07 cup-with-handle buy point, according to MarketSmith analysis. Dollar General stock arguably already was actionable after clearing a downward-sloping trendline Tuesday. The 240 price level lines up with DG stock tops in August and January.

Market Rally Analysis

The major indexes had a strong rebound Tuesday, though volume was significantly lighter than on Friday.

After tumbling last week to their lowest levels since late 2020, the Dow Jones, S&P 500 and Nasdaq composite arguably were due for a bounce. All the major indexes are still below their 10-day moving averages. The 50-day line is a much-higher hurdle, with the 200-day average and all-time highs far in the distance.

The indexes' best percentage gains in history are in bear markets or corrections, so Tuesday's action by itself wasn't that meaningful.

The S&P 500 and Nasdaq composite are on day two of a stock market rally attempt, while the Dow Jones is just on day one.

If the rally attempt continues, investors could look for a follow-through day later this week to confirm the new uptrend. But this bear market has seen several confirmed market rallies that fizzle immediately or within a few weeks.

Not many stocks are in position with the market selling off so hard in 2022.

Energy stocks bounced back after huge losses last week. Some names like Exxon Mobil and LNG stock are looking interesting.

China EV names have been leaders in recent weeks, but Li Auto probably could use an extended pause.

Ultimately, the stock market may struggle with the Fed raising rates aggressively and with recession risks high. That likely won't change until inflation shows meaningful declines, which will likely take several months at best.

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What To Do Now

A market rally attempt is trying to get going, but has yet to provide evidence that it's got staying power. Even if there's a follow-through day soon, investors should be cautious about reentering the market, gradually adding exposure and being quick to scale back out.

If this rally attempt turns into a sustained uptrend that lasts weeks, months or years, there will be plenty of opportunities to be heavily invested.

Right now, build up your watchlists for stocks with strong relative strength, especially those holding or regaining key moving averages.