Dow Jones futures fell overnight, along with S&P 500 and Nasdaq futures. The stock market saw another opening bounce on Tuesday as the 10-year Treasury yield edged closer to 4%. The S&P 500 fell to a bear market low, but the major indexes rallied to close mixed.
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Investors should be extremely cautious about making any 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 indexes reversed. Enphase Energy ( ENPH ), a day after a bearish reversal, regained key support even after paring intraday gains. Tesla (TSLA) and Shockwave Medical (SWAV) are hitting resistance at their 50-day lines.
Meanwhile, lawyers for Tesla CEO Elon Musk and Twitter ( TWTR ) clashed Tuesday in another preliminary court hearing ahead of the 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 to make Musk abide by the deal, and Tuesday’s hearing seemed to reinforce that.
Shares of Twitter rose 1.4% to 42.11 on Tuesday. TWTR rose modestly in the afternoon as the audience continued.
After the close, egg giant Cal-Maine Foods ( CALM ) reported stronger-than-expected earnings. Cal-Maine’s earnings soared as revenue growth accelerated for the fifth consecutive quarter, to 103%. CALM shares were down overnight. Shares rose 1.4% to 60.53 on Tuesday, at the edge of a buy zone.
Shares of ENPH and Vertex are in the IBD 50 and the IBD Big Cap 20. The video embedded in this article discusses Tuesday’s bear market action and looks at shares of Vertex, WWE and SWAV.
Dow Jones futures today
Dow Jones futures fell 0.3% to fair value, reversing slight gains on Tuesday night. S&P 500 futures retreated 0.35%. Nasdaq 100 futures sank 0.4%.
The 10-year Treasury yield rose 1 basis point to 3.97%.
Crude oil futures fell slightly.
Remember that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next normal stock market session.
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Tuesday Stock Market
The stock market tried to bounce back near the open, with stronger and broader gains Tuesday morning than Monday. But as the 10-year Treasury yield soared to a fresh 12-year high, boosted by a series of stronger-than-expected economic reports at 10 a.m. ET, the major indexes reversed -se down, with the S&P 500 below June lows. However, the indices rallied to finish very mixed.
The Dow Jones Industrial Average fell 0.4% in Tuesday’s trading. The S&P 500 lost 0.2%. The Nasdaq composite rose 0.25%. The small-cap Russell 2000 rose 0.3%.
The 10-year Treasury yield rose 9 basis points to 3.96%, reaching 3.99% intraday. The 10-year yield has not exceeded 4% since April 2010. The two-year Treasury yield is at 4.3%, trending lower on the session.
The yield on 30-year British gold reached 5% on Tuesday. The new UK government plans to borrow heavily for tax cuts, while investors are betting the Bank of England will have to raise interest rates to support the pound. The pound rallied on Tuesday, but then gave up most of its gains. That’s after falling to a record low against the dollar on Monday.
The price of US crude rose 2.3% to $78.50 a barrel, recovering the lowest levels since January.
ETFs
Among the top ETFs, the Innovator IBD 50 ETF ( FFTY ) rose 1.1%. The iShares Extended Technology Software Sector ETF ( IGV ) rose 0.7%. The VanEck Vectors Semiconductor ETF (SMH) advanced 0.8%.
SPDR S&P Metals & Mining (XME) gained 2.8%. US Global Jets (JETS) rose 1.6%. SPDR S&P Homebuilders (XHB) rose 0.4%. The Energy Select SPDR ETF (XLE) advanced 1.1% and the Financial Select SPDR ETF (XLF) fell 0.4%. The Select Healthcare Sector SPDR Fund ( XLV ) fell 0.3%.
Mirroring stocks with more speculative stories, ARK Innovation ETF ( ARKK ) and ARK Genomics ( ARKG ) rose 2.1%. Tesla stock is one of the top holdings 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 reaching a downtrend line. In a better environment, this would have a buy signal, but VRTX stock faded along with the market. The relative strength line hit another new high. The official buy point is 306.05 from a flat base that is only 10% deep.
Vertex and its partner Crispr Therapeutics ( CRSP ) said Tuesday they will begin seeking FDA approval for the first approved treatment using the CRISPR gene-editing technique. Treatment would be for sickle cell disease and beta thalassemia.
Shares of WWE rose to 69.95 intraday, crossing the 50-day line and reclaiming an earlier buy point of 68.83. That flirted with an early entry, but WWE shares reversed the decline before recovering to gain 0.75% to 68.20. The struggling media set has a flat base with a buy point of 75.33, according to MarketSmith.
ENPH shares gained 3.6% to 284.81, reclaiming the 50-day line. Intraday, shares reached 294.80, but hit resistance at the 21-day moving average.
SWAV shares rose modestly for the second straight session, up 2.4% to 260.83. But the stock is touching resistance at the 50-day line. So far this week, Shockwave shares are up modestly on lighter volume after falling 11.7% last week.
Tesla shares rose 2.5% to 282.94 on Tuesday. But shares hit resistance at the 50-day line, with slight gains from 288.67 intraday. TSLA stock has a 314.74 buy point from a short base within a much larger consolidation. Tesla is hosting AI Day on Friday, and third-quarter global deliveries will likely take place over the weekend.
Stock market analysis
For the second straight session, the bulls tried to fight back in the open air. The Nasdaq rose as much as 2.2% in minutes after Tuesday’s session, surpassing Monday’s high.
But as Treasury yields rose again, the major indexes pared, erased and reversed those gains.
Meanwhile, the S&P 500 dropped off its June 17 low. The benchmark joined the Dow Jones, which broke below its June 17 low on Friday. The Nasdaq has yet to break off June’s bear market lows, even Friday’s intraday.
Even with yields holding intraday highs, the major indexes recovered to close mixed.
The Cboe Volatility Index, or VIX, rose to a new three-month high, giving back intraday highs as stocks rallied late. The market’s fear indicator is at a level that could indicate at least a near-term low, but that could have been said over the past few days. The VIX is also not necessarily at a level that indicates a long-term bear market bottom.
The inability of the market to recover for more than a few minutes is not encouraging. But even if the major indexes rebounded solidly for a day or two, that wouldn’t necessarily mean much. The best market days ever are in bear markets.
Some major stocks tried to rally on Tuesday but pared gains with the market, including shares of WWE, Shockwave and Tesla.
The bear market could be about to start a new downward phase. It is still possible for the market to bottom around the June lows, although this does not have to mean a quick switch to a strong uptrend. It is quite possible that the market will be near the lows for weeks or months.
It’s hard to see the S&P 500 and the broader stock market making a sustained rally with Treasury yields and the dollar rising. Perhaps the 10-year yield will hit resistance around the 4% level. A pullback could trigger a stock market bounce.
However, Treasury yields are unlikely to break their uptrend until the Fed secures slower rate hikes. Policymakers have given no such indication, and may not until inflation cools significantly and labor markets weaken. It is possible that the 10-year yield could break through earlier, but that would likely reflect expectations of a clear recession in the United States. Going into a recession isn’t exactly a recipe for a stock market boom.
Still, markets are now leaning slightly toward a fourth consecutive rate hike of 75 basis points in November. Markets are now split between a year-end fed funds rate of 4%-4.25% vs. 4.25%-4.5%, a moderate drop from Monday.
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what to do now
The last two days have shown the dangers of buying stocks during a strong open in a bear market.
Investors need to be patient and wait for real signs of strength, not just a few strong minutes or a good day. Even if a market rally starts and does a follow-up day in the near future, there would probably be reasons to be cautious. The major indexes would have various levels of resistance, although they would likely be at the mercy of the Federal Reserve and the bond market.
Continue to have plenty of cash and work on your watchlists. Relative strength is paramount. But many relative leaders are struggling and are below their 50-day lines.
Read The Big Picture every day to stay in sync with 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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