Wednesday Market Action Review – Dow Jones Jumps 549 Points As Treasury Yields Tumble, Eli Lilly Leads 7 Bullish Stocks
The Russell 2000 was yesterday’s biggest winner as it jumped 3.2% while the SPDR S&P Mid Cap 400 ETF (MDY) rose 2.7%. Those finishes outclassed gains of 2% to 2.1% by the S&P 500 and Nasdaq composite.
The Dow Jones Industrial Average rallied 1.9%. Fourteen blue chips of the 30-member index rose 2 points or more.
The yield on the benchmark U.S. 10-year government bond sank 25 basis points to 3.70%, according to CBOE data. The home-improvement chain Home Depot (HD) led the Dow industrials’ winners. See the Home Depot chart below.
It is probably not time yet to go purchasing Home Depot shares as the daily chart of Home Depot shows, it and scores of quality blue chips are trying to dig out of their holes after sliding beneath their 50- and 200-day moving averages. It’s still languishing 33% off its 52-week peak. Therefore, it is prudent to wait to see more stocks — and indexes, for that matter — trade well above these technical levels before even thinking about purchasing shares.
The Wednesday strong rebound of the major indexes was the result of the Treasury yields tumbled from 12-year highs which itself was a direct result of the Bank of England unexpectedly announcement of the resumption of bond buying.
The stock market had opened mixed but soon picked up momentum after the Bank of England (BOE) announced early Wednesday that it would buy long-term British bonds, a big policy reversal. Gilt yields had soared in recent days while the pound had plunged as new U.K. Prime Minister Liz Truss announced plans for a big increase in borrowing.
The 10-year Treasury yield, which had just topped 4% overnight, fell sharply on the BoE move. That, in turn, fueled a long-await stock market bounce.
Apple reportedly is reining in iPhone production plans as an expected demand boost apparently hasn’t materialized. The Dow tech titan told suppliers that it aims to make 90 million handsets, flat vs. the prior year. Apple stock ultimately closed down 1.3% to 149.84 after skidding to 144.84 intraday.
The 10-year Treasury yield tumbled 27 basis points to 3.7%. In overnight (Tuesday to Wednesday) trading, the 10-year Treasury yield briefly hit a 12-year high of 4.005% before the BoE bond-buying plan.
The dollar fell solidly Wednesday, but just gave a portion of its big gains in the past several days. The greenback has surged over the past year.
Stocks To Watch Going Forward
Biogen (BIIB) and Japanese partner Eisai reported their Alzheimer’s drug reduced cognitive decline in a late-stage trial. BIIB stock skyrocketed 40%.
Eli Lilly (LLY) gapped up to a buy point on the Biogen news. Lilly is working on a similar Alzheimer’s treatment.
Vertex Pharmaceuticals (VRTX) made a bullish move, along with Regeneron Pharmaceuticals (REGN) and so did drug distributor Cardinal Health (CAH). DoubleVerify (DV), Cheniere Energy (LNG) and Albemarle (ALB) are showing positive action.
Apple (AAPL) sold off Wednesday morning on report that it’s reining in iPhone production. But AAPL stock closed well off session lows. Apple iPhone chipmakers mostly recovered to little changed.
LLY stock leapt 7.5% to 334.38, gapping above its 50-day moving average and downtrend line. Intraday, shares hit 341.70, topping a 335.43 flat-base buy point before closing in the lower half of its daily range. The relative strength line, (RS) already at highs, spiked again. Still, gap ups have struggled in the bear market.
Biogen’s positive late-stage Alzheimer’s drug news is a positive sign for Lilly’s own treatment in clinical trials. But how should the market price in encouraging news for a rival’s drug, especially given the historic struggles with finding effective Alzheimer’s treatments? Still, overall, Lilly’s pipeline looks robust, with analysts expecting massive sales from a new obesity drug.
VRTX stock rose 2.7% to 292.41, clearing its 50-day line and trendline, flashing an aggressive entry.
REGN stock climbed 1.5% to 705.42, closing just below a short downtrend line after clearing that level intraday. Regeneron stock is consolidating after briefly spiking to a record high in early September on positive clinical data for its already-approved Eylea drug. The RS line is at a two-year high.
Cardinal Health stock popped 4.65% to 69.29, breaking a short downtrend and clearing the 21-day moving average. That extends Tuesday’s bounce from the 50-day moving average. CAH stock may be forming a new consolidation after racing higher in July and August.
DoubleVerify stock rose 2.9% to 27.85, continuing to bounce from the 50-day line, albeit in light volume. DV stock offered an aggressive entry in early September, but soon pulled back with the market. The RS line is at a 10-month high.
LNG stock jumped 6.8% to 162.97, regaining 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 stock rose 3.1% to 277.95 continuing to find support from the 50-day line. While technically near an old buy point, investors may want to see a new base form, or perhaps pause for a little longer before rebounding higher.
Market Analysis
The stock market finally got a real bounce for a full session. The major indexes rallied strongly Wednesday in response to plunging Treasury yields and a falling dollar. Treasuries reacted to the Bank of England’s move to temporarily buy British bonds.
As the Bank of England showed, central banks can reverse policy quickly when financial markets come under strain. So it’s possible that Fed policy could, at some point, abruptly change. But the Fed appears comfortable with “just” a bear market, and willing to risk a clear-cut recession.
In any case, the market bounce wasn’t that surprising given oversold conditions, rising bearish sentiment and other factors. The major indexes are still right at bear market lows. Investors should look for real signs of market strength.
As a practical matter, any stock market rebound will likely depend on whether Treasury yields continue to pull back. But Treasury yields will likely remain in an uptrend as long as the Federal Reserve is aggressively raising rates. It’s been so long since the market had a solid day that investors need to keep perspective and it is very important to remember that it is still a bear market. The major indexes are right at lows. Stocks remain are at the mercy of Treasury yields, which are in turn at the mercy of the Federal Reserve. Investors generally should wait for signs that bulls are gaining momentum but plunging in to the market.
If you do decide to buy stocks flashing buy signals, such as Eli Lilly or Vertex, then consider treating them as swing trades, taking partial or full profits very quickly. The risks of reversal are very high, especially if the market resumes selling.
A market rally attempt is underway. So investors should be working on their watch lists. A likely winning formula will be to focus on relative strength (performance compared to other stocks) while paying particular attention to stocks above or testing key levels such as the 50-day moving average.
A stock trading below the 200 day average should be regarded as struggling and treated with a lot of caution
