Dow Jones futures fell slightly overnight, along with S&P 500 and Nasdaq futures. Major indexes rallied strongly on Wednesday as Treasury yields fell from 12-year highs as the Bank of England resumed bond purchases.
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biogen (BIIB) and Japanese partner Eisai reported that their Alzheimer’s drug reduced cognitive decline in a late-stage trial. BIIB shares soared 40%.
Eli Lilly ( LLY ) was at a buy point on news from Biogen. Lilly is working on a similar treatment for Alzheimer’s.
Vertex Pharmaceuticals (VRTX) made a bullish move, along with Regeneron Pharmaceuticals (KINGDOM). So did the drug dealer Greetings cardinal (CAH). DoubleVerify (DV), Cheniere Energy (LNG) and Albemarle (ALB) are showing positive actions.
apple ( AAPL ) sold off Wednesday morning on reports that it is slowing iPhone production. But AAPL shares closed at session lows. Apple’s iPhone chipmakers bounced back mostly unchanged.
Shares of VRTX and DoubleVerify are on the IBD Leaderboard. Vertex, Albemarle and DV stocks are in the IBD 50. Vertex and ALB stocks are in the IBD Big Cap 20.
Dow Jones futures today
Dow Jones futures fell 0.1% to fair value. S&P 500 futures lost 0.1% and Nasdaq 100 futures lost 0.15%.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next normal stock market session.
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Stock market Wednesday
The stock market opened mixed but soon gained momentum and finally had a clearly positive session.
The Bank of England announced early Wednesday that it would buy long-term British bonds, a major policy reversal. Gold yields had soared in recent days while the pound had plunged as the UK’s new prime minister, Liz Truss, announced plans for a big increase in lending.
The 10-year Treasury yield, which had just topped 4% overnight, fell sharply on the BoE’s move. This, in turn, fueled a long-awaited stock market rebound.
The Dow Jones Industrial Average rose 1.9% in Wednesday’s trading. The S&P 500 rose nearly 2%. The Nasdaq composite jumped a little more than 2%. The small-cap Russell 2000 jumped 3.2%.
Apple is reportedly slowing iPhone production plans as an expected surge in demand appears to have failed to materialize. The Dow tech titan told suppliers it aims to make 90 million mobile phones, flat from a year earlier. Apple shares finally closed up 1.3% to 149.84 after suffering as high as 144.84 intraday.
The 10-year Treasury yield fell 27 basis points to 3.7%. In overnight trading, the 10-year Treasury yield briefly hit a 12-year high of 4.005% ahead of the BoE’s bond-buying plan.
The dollar fell solidly on Wednesday, but gave back only a fraction of its big gains in recent days. The greenback has risen over the past year.
ETFs
Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) rose 3.7%. The iShares Extended Technology Software Sector ETF ( IGV ) rose 2.2%. The VanEck Vectors Semiconductor ETF ( SMH ) rose 1.3%.
SPDR S&P Metals & Mining ETF (XME) rose 4.6%. SPDR S&P Homebuilders ETF ( XHB ) rose 4.8%. The Energy Select SPDR ETF (XLE) rose 4.4% and the Financial Select SPDR ETF (XLF) rose 2%. The Select Health Sector SPDR Fund (XLV) gained 2.2%. LLY shares are XLV’s top holdings.
Reflecting more speculative stocks, the ARK Innovation ETF (ARKK) rose 4.7% and the ARK Genomics ETF (ARKG) rose 6%.
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Stocks to watch
Shares of LLY jumped 7.5% to 334.38, gapping above its 50-day moving average and downtrend line. Intraday, the stock hit 341.70, breaking through a flat-based buy point at 335.43 before closing in the lower half of its daily range. The line of relative strength, already at maximums, increased again. Still, gap ups have struggled in the bear market.
The positive news on Biogen’s late-stage Alzheimer’s drugs is a positive sign for Lilly’s treatment in clinical trials. But how should the market price in encouraging news for a rival’s drug, especially given the historic struggles to find effective Alzheimer’s treatments? Still, overall, Lilly’s pipeline looks robust, with analysts expecting massive sales of a new obesity drug.
Shares of VRTX rose 2.7% to 292.41, clearing its 50-day trend line and showing an aggressive entry. Vertex shares have a 306.05 buy point from a flat base, according to MarketSmith. The RS line for VRTX stock is at a new high. On Tuesday, Vertex rose 2.9% on positive news for its gene editing treatment, with Crispr Therapeutics (CRSP), for sickle cell anemia and another blood disorder.
Shares of REGN rose 1.5% to 705.42, closing just below a short downtrend line after hitting that level intraday. Shares of Regeneron are consolidating after hitting an all-time high in early September on positive clinical data for its already approved drug Eylea. The RS line is at its best for two years.
Shares of Cardinal Health rose 4.65% to 69.29, breaking a short-term downtrend and clearing the 21-day moving average. This extends Tuesday’s bounce from the 50-day moving average. CAH shares may be forming a new consolidation after rallying in July and August.
Shares of DoubleVerify rose 2.9% to 27.85, continuing to bounce off the 50-day line, albeit on light volume. DV stock made an aggressive entry in early September, but soon pulled back with the market. The RS line is at a maximum of 10 months.
LNG stock rose 6.8% to 162.97, retracing its 50-day moving average and 21-day line. Cheniere Energy and other LNG plays seem likely to have a long-term growth story.
ALB shares rose 3.1% to 277.95, continuing to find support at the 50-day line. While this is technically near an old buy point, investors may want to see a new base form, or perhaps pause a little longer before bouncing further.
Stock market analysis
The stock market finally had a real bounce for a full session. Major indexes rallied strongly on Wednesday in response to falling Treasury yields and a weaker dollar. Treasuries reacted to the Bank of England’s decision to temporarily buy British bonds.
As the Bank of England demonstrated, central banks can reverse policy quickly when financial markets come under stress. So it is possible that Fed policy could, at some point, change abruptly. But the Fed seems comfortable with “only” a bear market and willing to risk an outright recession.
In any case, the market rebound was not that surprising given the oversold conditions, increased bearish sentiment and other factors. Major indices are still at bear market lows. Investors should look for real signs of market strength.
A follow-up day to confirm a new recovery attempt would be a positive sign, although investors should still be very cautious in this scenario. A tracking day for one or more of the major indexes is still several days into the future.
As a practical matter, any stock market rally will likely depend on whether Treasury yields continue to decline. But Treasury yields will likely remain on the uptrend as long as the Federal Reserve aggressively raises rates.
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what to do now
It’s been so long since the market had a solid day that investors need to maintain perspective. It’s still a bear market. Major indexes are at lows. Stocks are at the mercy of Treasury yields, which are at the mercy of the Federal Reserve. But the Fed is adopting a Cobra Kai mentality: “Strike first. Hit hard. No mercy.”
In this environment, investors should generally wait for signs that bulls are gaining momentum.
If you decide to buy stocks with intermittent buy signals, such as Eli Lilly or Vertex, consider treating them as swing trades, taking partial or full profits very quickly. Reversal risks are very high, especially if the market resumes selling.
An attempt to come back to the market is let’s go. Therefore, investors should be working on their watch lists. Focus on relative strength, paying particular attention to top stocks or testing key levels such as the 50-day moving average.
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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