Dow Jones futures fell overnight, along with S&P 500 futures and Nasdaq futures. The major indexes rebounded strongly on Wednesday as bond yields fell from 12-year highs as the Bank of England continued to buy bonds.
Biogen (BIIB) and Japanese partner Eisai reported their Alzheimer’s drug reduced cognitive decline in a late-stage trial. BIIB shares soared 40%.
Eli Lilly (ONLY) gained a buy point on Biogen news. Lilly is working on a similar Alzheimer’s treatment.
Vertex Pharmaceuticals (VRTX) made a bullish move, along with Regeneron Pharmaceuticals (REGISTER). The same goes for drug distributors Cardinal Health (CAH). DoubleVerify (DV), Cheniere Energy (LNG) and Albemarle (ALB) is showing active action.
Dow Jones Futures Today
Dow Jones futures contract fell below fair value. S&P 500 futures fell 0.1% and Nasdaq 100 futures fell 0.1%.
The yield on the 10-year Treasury note rose 3 basis points to 3.74%.
Wednesday Stock Market
The stock market opened mixed but soon regained momentum, finally having a clear positive session.
The Bank of England announced early Wednesday that it would buy long-term British bonds, a major policy reversal. Gold-plated yields have spiked in recent days while the pound tumbled as new UK Prime Minister Liz Truss announced plans for a massive loan hike.
Yields on 10-year Treasuries, which just peaked at 4% overnight, fell sharply due to the BoE move. That prompted a long-awaited stock market rally.
The Dow Jones Industrial Average rose 1.9% on Wednesday stock market trading. The S&P 500 Index is up nearly 2%. The Nasdaq composite was up just over 2%. The small-cap Russell 2000 jumped 3.2%.
Apple is reported to be check iPhone production plan, as the expected increase in demand does not seem to have materialized. Dow’s tech giant told suppliers it aims to produce 90 million handsets, flat from the previous year. Apple stock ultimately closed down 1.3% at 149.84 after sliding to 144.84 on the day.
The yield on the 10-year Treasury note fell 26 basis points to 3.71%. In overnight trading, the 10-year Treasury note yield briefly hit a 12-year high of 4.005% ahead of the BoE’s bond-buying plan.
The dollar fell sharply on Wednesday, but delivered only a large portion of the gains over the past few days. The greenback has rallied strongly over the past year.
SPDR S&P Metals & Mining ETF (XME) increased by 4.6%. SPDR S&P Homebuilders ETF (XHB) increased by 4.8%. The Energy Select SPDR ETF (XLE) rose 4.4% and the financial SPDR ETF (XLF) increased 2%. SPDR Fund for the Healthcare Sector (XLV) increased by 2.2%. LLY stock is the main holding XLV stock.
Stocks to watch
LLY stock rose 7.5% to 334.38, above its 50-day moving average and downtrend line. During the day, the stock hit 341.70, topped out at 335.43 flat sole buy points before closing in the lower half of the daily range. The relative strength line, already at a high level, spiked again. However, arbitrage has struggled during the bear market.
The positive news about Biogen’s late-stage Alzheimer’s drug is a positive sign for Lilly’s own progress in clinical trials. But what should market prices do when there’s encouraging news for a rival drug, especially in light of the historic struggle to find an effective Alzheimer’s treatment? Overall, though, Lilly’s pipeline looks strong, with analysts expecting big sales from a new obesity drug.
VRTX stock rose 2.7% to 292.41, clearing the 50-day and trendline, flashing a positive entry. Vertex stock has 306.05 buy points from a flat base, according to MarketSmith. The RS line for VRTX stock is at a new high. On Tuesday, Vertex jumped 2.9% on positive news about the gene-editing treatment, with Crispr therapy (CRSP), for sickle cell anemia and another blood disease.
REGN stock rose 1.5% to 705.42, closing just below the short downtrend line after clearing that level for the day. Supply of Regeneron is consolidating after a brief spike to a record high in early September due to positive clinical data for the approved drug Eylea. The RS line is at a two-year high.
Cardinal Health stock rose 4.65% to 69.29, breaking a short downtrend and clearing the 21-day moving average. That extends Tuesday’s recovery from the 50-day moving average. CAH stock may be forming a new consolidation after surging higher in July and August.
DoubleVerify stock rose 2.9% to 27.85, continuing its rise from the 50-day line, albeit on low volume. DV shares offered strongly in early September, but soon returned to the market. The RS line is at a 10-month high.
LNG stock rose 6.8% to 162.97, regaining its 50-day and 21-day moving averages. Cheniere Energy and other LNG companies appear to have a long-term growth story.
ALB stock rose 3.1% to 277.95 continuing to find support from the 50-day line. Technically, near the old buy point, investors may want to see a new base form, or perhaps pause for a bit before climbing back higher.
Stock market analysis
The stock market finally had a real rally in a whole session. The major indexes rallied on Wednesday in response to falling Treasury yields and a falling dollar. The Treasury reacted to the Bank of England’s temporary purchases of bonds.
As the Bank of England has shown, central banks can reverse policy quickly when financial markets are under stress. So it is possible that Fed policy at some point could suddenly change. But the Fed appears comfortable with “just” a bear market and willing to risk a clear recession.
In any case, the market rally is not surprising given oversold conditions, increased bearish sentiment and other factors. The major indexes are still at the bottom of the bear market. Investors should look for real signs of market strength.
One track date to confirm a new recovery attempt would be a positive signal, though investors should still be very cautious in such a scenario. The next day of one or more major indices is still several days into the future.
In fact, any stock market rally will likely depend on whether Treasury yields continue to fall again. However, Treasury yields are likely to remain in an uptrend as long as the Federal Reserve is actively raising interest rates.
What to do now
It’s been too long since the market had a solid day so investors need to keep their perspective. It is still a bear market. The major indexes are right at the lows. Stocks depend on the yield of the Treasury, which is the yield of the Federal Reserve. But the Fed is adopting the Cobra Kai mentality: “Strike first. Attack hard. Zero tolerance.”
In that environment, investors should generally wait for signs that the bulls are turning bullish.
If you decide to buy stocks that flash buy signals, such as Eli Lilly or Vertex, treat them like swing trades, profiting in part or in full very quickly. The risk of a reversal is very high, especially if the market continues to sell.
An attempt to recover the market To be in process. So investors should work on their watch list. Focus on relative strength, paying special attention to stocks above, or test key levels like the 50-day moving average.
Read Big picture every day to stay in sync with market trends and top stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
YOU MIGHT ALSO LIKE: