Dow Jones futures rose slightly overnight, as did S&P 500 and Nasdaq futures. The stock market saw another open rebound on Tuesday as the 10-year Treasury yield jumped toward 4%. The S&P 500 index fell to a bear market low, but the major indexes rallied to a mixed close.
Investors should be extremely careful before doing anything, even when quality stocks are showing bullish action.
Tuesday, Vertex Pharmaceuticals (VRTX) and World wrestling entertainment (WWE) briefly gave what would have been aggressive buy signals in a decent market. But they pulled back from early highs as the indices reversed. Enphase Energy (ENPH), a day after a bearish reversal, reclaimed key support even after paring intraday gains. You’re here (TSLA) and medical shock wave (SWAV) encountered resistance on their 50-day lines.
Meanwhile, attorneys for Tesla CEO Elon Musk and Twitter (TWTR) squared off in another preliminary hearing on Tuesday ahead of their takeover trial in October. Musk is trying to get out of his $44 billion, $54.20 per share takeover deal to buy Twitter. Legal experts say Twitter has a strong case for Musk to go through with the deal, and Tuesday’s hearing appears to reinforce that.
Twitter stock rose 1.4% to 42.11 on Tuesday. TWTR rose slightly late in the session as viewership continued.
After the closing, the egg giant Cal Maine Foods (CALM) reported earnings above expectations. Cal-Maine’s profits soared as revenue growth accelerated for a fifth straight quarter, to 103%. CALM stock fell slightly overnight. Shares rose 1.4% to 60.53 on Tuesday, on the edge of a buy zone.
ENPH and Vertex stocks are on the IBD 50 and IBD Big Cap 20. The video embedded in this article discusses Tuesday’s bear market action and analyzes Vertex, WWE and SWAV stocks.
Dow Jones Futures Today
Dow Jones futures rose 0.2% relative to fair value, with S&P 500 futures rising 0.3%. Nasdaq 100 futures advanced 0.4%.
Remember that overnight action on futures contracts on Dow and elsewhere does not necessarily translate into actual trading in the next regular trading session.
Join the experts at IBD as they analyze actionable stocks in the stock market rally on IBD Live
Stock market tuesday
The stock market again tried to rebound near the open, with stronger and broader gains Tuesday morning than Monday. But as the 10-year Treasury yield hit a new 12-year high, fueled by a number of stronger-than-expected economic reports at 10 a.m. ET, the major indexes reversed lower, with the S&P 500 dropping below its June lows. However, the indices recovered to end narrowly mixed.
The Dow Jones Industrial Average fell 0.4% in trading on Tuesday. The S&P 500 index lost 0.2%. The Nasdaq composite climbed 0.25%. The small-cap Russell 2000 rose 0.3%.
The 10-year Treasury yield jumped 9 basis points to 3.96%, hitting 3.99% intraday. The 10-year yield has not exceeded 4% since April 2010. The two-year Treasury yield is at 4.3%, slightly lower during the session.
The yield on the UK 30-year gilt hit 5% on Tuesday. Britain’s new government plans to borrow heavily to cut taxes, while investors are betting the Bank of England will have to raise rates sharply to prop up the pound. The pound rebounded on Tuesday but then gave up most of its gains. That’s after plunging to a record low against the dollar on Monday.
U.S. crude oil prices rose 2.3% to $78.50 a barrel, rebounding from the lowest levels since January.
Among the top ETFs, the Innovator IBD 50 ETF (FFTY) gained 1.1%. The iShares Expanded Tech-Software Sector ETF (IGV) climbed 0.7%. ETF VanEck Vectors Semiconductor (SMH) rose 0.8%.
SPDR S&P Metals & Mining (XME) gained 2.8%. US Global Jets (JETS) climbed 1.6%. SPDR S&P Homebuilders (XHB) edged up 0.4%. The Energy Select SPDR ETF (XLE) rose 1.1% and the Financial Select SPDR ETF (XLF) fell 0.4%. The SPDR healthcare sector fund (XLV) fell 0.3%.
Mirroring stocks with more speculative histories, ETF ARK Innovation (ARKK) and ARK Genomics (ARKG) both rose 2.1%. Tesla stock is one of Ark Invest’s top ETF stocks.
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Stocks to Watch
Vertex shares rose 2.9% to 284.74. Intraday, shares reached 289.52, clearing the 50-day line and hitting a descending trendline. In a better environment, this would have a buy signal, but VRTX action has faded along with the market. The relative strength line has reached a new high. The official buy point is 306.05 from a flat base just 10% deep.
Vertex and partner Crispr Therapeutic (CRSP) said on Tuesday it would begin seeking FDA approval for the first approved treatment using the CRISPR gene-editing technique. The treatment would be for sickle cell anemia and beta thalassemia.
WWE shares hit 69.95 during the day, crossing the 50-day line and reclaiming an older buy point of 68.83. It flirted with an early entry, but WWE stocks reversed before rallying for a 0.75% gain to 68.20. The wrestling media outfit has a flat basis with a buy point of 75.33, according to MarketSmith.
ENPH stock gained 3.6% to 284.81, reclaiming the 50-day line. Intraday, the shares reached 294.80 but hit resistance at the 21-day moving average.
SWAV stock edged higher for a second straight session, rising 2.4% to 260.83. But stocks hit resistance at the 50-day line. So far this week, Shockwave stock has risen slightly in lighter volume after falling 11.7% last week.
Tesla stock climbed 2.5% to 282.94 on Tuesday. But shares hit resistance at the 50-day line, paring gains slightly from 288.67 intraday. TSLA stock has a buy point of 314.74 from a short base in a much broader consolidation. Tesla is hosting AI Day on Friday, with third-quarter global deliveries likely over the weekend.
Stock market analysis
For a second straight session, the bulls attempted to defend in the open. The Nasdaq rose 2.2% minutes into Tuesday’s session, topping Monday’s high.
But as Treasury yields rose yet again, major indexes cut, erased and reversed those gains.
The S&P 500, meanwhile, broke above its June 17 low. The benchmark joined the Dow Jones, which fell below its June 17 low on Friday. The Nasdaq has yet to break past its June bear market lows or even Friday’s intraday.
Even with yields holding at intraday highs, major indices rallied to a mixed close.
The Cboe Volatility Index, or VIX, hit a new three-month high, pulling back from intraday highs as stocks rallied late. The Market Fear Gauge is at a level that could signal at least a near-term bottom, but that could have been said for the past few days. The VIX is also not necessarily at a level that would indicate that a long-term bear market bottom is near.
The market’s inability to rebound for more than a few minutes is not encouraging. But even if the major indexes rebounded strongly for a day or two, that wouldn’t necessarily mean much. The best market days in history are bear markets.
Some top stocks tried to rebound on Tuesday but pared their gains with the market, including WWE, Shockwave and Tesla stocks.
The bear market could be about to start a new downward leg. There is always the possibility of the market bottoming out around the June lows, although that doesn’t necessarily mean a quick move into a powerful uptrend. It is entirely possible for the market to be near lows for weeks or months.
It’s hard to see the S&P 500 and the stock market as a whole experiencing a sustained recovery with Treasury yields and the soaring dollar. Perhaps the 10-year yield will hit resistance around the 4% level. A pullback could spur a rebound in the stock market.
Still, Treasury yields are unlikely to break their uptrend until the Fed signals a slowdown in upcoming rate hikes. Policymakers have given no such indication, and that may not be the case until inflation cools significantly and labor markets weaken. It is possible that the 10-year yield will top earlier, but that would likely reflect expectations of a sharp recession in the US. Heading into a recession isn’t exactly a recipe for a stock market boom.
Yet markets are now edging slightly toward a fourth straight 75 basis point rate hike in November. Markets are now torn between a year-end federal funds rate of 4% to 4.25% versus 4.25% to 4.5%, down slightly from Monday.
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What to do now
The past two days have shown the dangers of buying stocks on a high open in a bear market.
Investors need to be patient and wait for real signs of strength, not just a few good minutes or a good day. Even if a market rally were to kick in and set up a trailing day in the near future, there would likely be reason to be cautious. The major indices would have several levels of resistance, while likely remaining at the mercy of the Federal Reserve and the bond market.
Continue to hold plenty of cash and work on your watchlists. Relative strength is paramount. But many relative leaders are struggling and below their 50-day lines.
Read The Big Picture every day to stay in tune with market direction and top stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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