Dow Jones Jumps 549 Points As Treasury Yields Tumble, But Now What? Eli Lilly Leads 7 Bullish Stocks

Dow Jones futures tilted lower overnight, along with S&P 500 futures and Nasdaq futures. The major indexes rebounded strongly Wednesday as Treasury yields tumbled from 12-year highs as the Bank of England resumed bond buying.

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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). 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.

VRTX stock and DoubleVerify are on IBD Leaderboard. Vertex, Albemarle and DV stock are on the IBD 50. Vertex and ALB stock are on the IBD Big Cap 20.

Dow Jones Futures Today

Dow Jones futures edged lower vs. fair value. S&P 500 futures dipped 0.1% and Nasdaq 100 futures fell 0.1%.

The 10-year Treasury yield rose 3 basis points to 3.74%.

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

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Stock Market Wednesday

The stock market opened mixed but soon picked up momentum, finally having a clearly positive session.

The Bank of England announced early Wednesday that it would buy long-term British bonds, a big policy reversed. 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.

The Dow Jones Industrial Average rose 1.9% in Wednesday’s stock market trading. The S&P 500 index popped nearly 2%. The Nasdaq composite jumped just over 2%. The small-cap Russell 2000 leapt 3.2%.

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 26 basis points to 3.71%. In overnight 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.

ETFs

Among the best ETFs, the Innovator IBD 50 ETF (FFTY) leapt 3.7%. The iShares Expanded Tech-Software Sector ETF (IGV) rose 2.2%. The VanEck Vectors Semiconductor ETF (SMH) rose 1.3%.

SPDR S&P Metals & Mining ETF (XME) popped 4.6%. SPDR S&P Homebuilders ETF (XHB) jumped 4.8%. The Energy Select SPDR ETF (XLE) rallied 4.4% and the Financial Select SPDR ETF (XLF) climbed 2%. The Health Care Select Sector SPDR Fund (XLV) gained 2.2%. LLY stock is major XLV holding.

Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) jumped 4.7% and ARK Genomics ETF (ARKG) surged 6%.

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Stocks To Watch

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, 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. Vertex stock has 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 disease.

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.

Stock 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.

A follow-through day to confirm a new rally attempt would be a positive signal, though investors should still be very cautious in such a scenario. A follow-through day on one or more of the major indexes is still a few days in the future.

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.

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What To Do Now

It’s been so long since the market had a solid day that investors need to keep perspective. It’s still a bear market. The major indexes are right at lows. Stocks are at the mercy of Treasury yields, which are the mercy of the Federal Reserve. But the Fed is taking a Cobra Kai mentality: “Strike first. Strike hard. No mercy.”

In that environment, investors generally should wait for signs that bulls are gaining momentum.

If you do decide to buy stocks flashing buy signals, such as Eli Lilly or Vertex, 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 watchlists. Focus on relative strength, paying particular attention to stocks above or testing key levels such as the 50-day moving average.

Read The Big Picture every day to stay in sync with the 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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