Dow Jones futures rose modestly overnight, along with S&P 500 futures and Nasdaq futures. The stock market saw another rebound from the opening on Tuesday, as 10-year Treasury yields rose to 4%. The S&P 500 index fell to bear market lows, but major indices rose to mixed.
Investors should be extremely careful about making moves, even when quality stocks are showing bullish action.
On Tuesday, Vertex Pharmaceuticals (VRTX) and World Wrestling Entertainment (WWE) briefly flashed 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), one day after a downside reversal, regained key support even after pairing intraday gains. Tesla (TSLA) and Shockwave Medical (SWAV) encountered resistance near their 50-day lines.
Meanwhile, lawyers for Tesla CEO Elon Musk and Twitter (TWTR) faced each other on Tuesday in another preliminary court hearing ahead of their October takeover process. Musk is trying to get out of his $44 billion, $54.20 per share acquisition deal to buy Twitter. Legal experts say Twitter has a strong case for letting Musk go through with the deal, and Tuesday’s hearing seemed to bolster that.
Shares of Twitter rose 1.4% on Tuesday to 42.11. TWTR rose modestly in late trading as the hearing continued.
After the lockdown, egg giant Cal-Maine Foods (CALM) reported stronger than expected results. Cal-Maine’s revenues skyrocketed as revenue growth accelerated to 103% for the fifth straight quarter. CALM stocks fell overnight. Shares rose 1.4% to 60.53 on Tuesday, on the edge of a buying zone.
ENPH stocks and Vertex are on the IBD 50 and the IBD Big Cap 20. The video in this article discusses Tuesday’s bear market action and analyzes Vertex, WWE and SWAV stocks.
Dow Jones Futures Today
Dow Jones futures were up 0.3% from fair value, while S&P 500 futures were up 0.3%. Nasdaq 100 futures were up 0.5%.
Keep in mind that an overnight action in Dow futures and elsewhere does not necessarily lead to actual trading in the next regular trading session.
Join IBD experts as they analyze actionable stocks during the stock market rally on IBD Live
The stock market again tried to bounce close to the open, with stronger, wider gains Tuesday morning than Monday. But as 10-year yields rose to a new 12-year high, fueled by some stronger-than-expected economic reports at 10 a.m. ET, major indices reversed lower, with the S&P 500 slipping below the June low. However, the indices recovered and ended up 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 climbed 0.3%.
The 10-year Treasury yield rose 9 basis points to 3.96% and reached 3.99% intraday. The 10-year return has not exceeded 4% since April 2010. The yield on two-year government bonds stands at 4.3%, which is lower during the session.
The 30-year yield on British government bonds reached 5% on Tuesday. The new British government plans to borrow big money for tax cuts, while investors bet the Bank of England will have to raise interest rates sharply to support the pound. The pound bounced on Tuesday, but then gave up most of its gains. That is after a low against the dollar on Monday.
The price of crude oil in the US rose 2.3% to $78.50 a barrel, after its lowest level since January.
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) was up 1.1%. The iShares Expanded Tech-Software Sector ETF (IGV) climbed 0.7%. The VanEck Vectors Semiconductor ETF (SMH) rose 0.8%.
SPDR S&P Metals & Mining (XME) gained 2.8%. US Global Jets (JETS) were up 1.6%. SPDR S&P Homebuilders (XHB) rose 0.4%. The Energy Select SPDR ETF (XLE) rose 1.1% and the Financial Select SPDR ETF (XLF) fell 0.4%. The Health Care Select Sector SPDR Fund (XLV) fell 0.3%.
As a result of stocks with more speculative stories, the ARK Innovation ETF (ARKK) and ARK Genomics (ARKG) both rose 2.1%. Tesla stocks are a top spot in Ark Invest’s ETFs.
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Stocks to watch
Vertex shares rose 2.9% to 284.74. Intraday, the stock reached 289.52, clearing the 50-day line and hitting a downward-sloping trendline. In a better environment, that would have a buy signal, but VRTX stock faded along with the market. The relative strength line again reached a new high. The official buy point is 306.05 from a flat base that is only 10% deep.
Vertex and partner Crispr Therapeutics (CRSP) said Tuesday they will seek FDA approval for the first approved treatment using the CRISPR gene-editing technique. The treatment would be for sickle cell disease and beta thalassemia.
WWE shares hit 69.95 intraday, crossing the 50-day mark and reclaiming an older buy of 68.83. That flirted with an early entry, but WWE stocks fell before recovering for a 0.75% gain to 68.20. The struggling media outfit has a flat base with a buy point of 75.33, according to MarketSmith.
ENPH shares gained 3.6% to 284.81, regaining the 50-day line. Intraday, shares hit 294.80 but encountered resistance at the 21-day moving average.
SWAV shares climbed modestly for a second consecutive session, up 2.4% to 260.83. But the stock encountered resistance near the 50-day line. So far, Shockwave stock has seen modest gains in lighter volumes this week after dropping 11.7% last week.
Shares of Tesla rose 2.5% to 282.94 on Tuesday. But stocks encountered resistance near the 50-day line, the pair gaining slightly from 288.67 intraday. TSLA shares have a buy point of 314.74 from a short base within a much larger consolidation. Tesla will host AI Day on Friday, with worldwide deliveries in the third quarter likely over the weekend.
Stock market analysis
For a second consecutive session, bulls tried to fight back in the open. The Nasdaq rose as much as 2.2% a few minutes after Tuesday’s session, surpassing Monday’s high.
But as government bond yields boomed again, major indices flattened, erased and unwound those gains.
Meanwhile, the S&P 500 interrupted the June 17 low. The benchmark index joined the Dow Jones, which broke below the low of June 17 on Friday. The Nasdaq has not yet undercut the declines of the June bear market or even Friday’s intraday.
Even with returns remaining at intraday highs, major indices bounced back to close mixed.
The Cboe Volatility Index, or VIX, rose to a new three-month high, reversing intraday highs as stocks rose late. The market fear meter is at a level that could signal at least a near-term bottom, but that could have been said in recent days. The VIX is also not necessarily at a level that would indicate that a longer-term bear market bottom is near.
The market’s inability to recover for more than a few minutes is not encouraging. But even if the major indices bounced briskly for an entire day or two, that wouldn’t necessarily mean much. The best market days in history are in bear markets.
Some leading stocks tried to bounce back on Tuesday, but they took gains away from the market, including WWE, Shockwave and Tesla stocks.
The bear market would be about to start another leg down. It is still possible for the market to bottom around the June lows, although that doesn’t necessarily mean a rapid shift into a strong uptrend. It is very possible that the market will be near lows for weeks or months.
It’s hard to see the S&P 500 and the general stock market rally further with government bond yields and the dollar soaring. Perhaps 10-year yields will hit resistance around the 4% level. A pullback can stimulate a rebound in the stock market.
Still, government bond yields are unlikely to break their upward trend until the Fed signals impending rate hikes to slow down. Policymakers have not provided such an indication, and may not be until inflation has cooled significantly and labor markets weaken. It is possible that 10-year yields will peak earlier, but that would likely reflect expectations of a clear recession in the US. Heading into a recession isn’t exactly a recipe for a stock market boom.
Still, markets are now only tilting slightly towards a fourth consecutive 75 basis point rate hike in November. Markets are now roughly split between a year-end fed funds rate of 4%-4.25% versus 4.25%-4.5%, a modest decline from Monday.
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What to do now
The past two days have shown the dangers of buying stocks during a strong open in a bear market.
Investors should be patient and wait for real signs of strength, not just a few strong minutes or a good day. Even if a market rally gets underway and a follow-up day is organized in the near future, there are likely reasons to be cautious. Major indices are said to have varying levels of resistance, while likely still at the mercy of the Federal Reserve and the bond market.
Keep a lot of money and work on your watchlists. Relative power is paramount. But many relative leaders are struggling and are below their 50-day mark.
Read The Big Picture every day to stay up to date on market direction and leading stocks and sectors.
Follow Ed Carson on Twitter at @IBD_ECarson for stock updates and more.
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