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Dow Jones jumps 549 points as Treasury yields fall, but now what? Eli Lilly Leads 7 Bullish Stocks




Dow Jones futures fell slightly overnight, along with S&P 500 futures and Nasdaq futures. The major indexes rallied sharply on Wednesday as government yields fell from 12-year highs as the Bank of England resumed bond purchases.




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Biogenic (BIIB) and Japanese partner Eisai reported that their Alzheimer’s drug reduced cognitive decline in a late-stage study. The BIIB share rose by 40 per cent.

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 (RAIN). So did the drug distributor Cardinal health (CAH). DoubleVerify (DV), Cheniere energy (LNG) and Albemarle (ALB) shows positive action.

apple ( AAPL ) sold off Wednesday morning after reports that it is reining in iPhone production. But AAPL stock closed well after declines in the session. Apple iPhone chip makers largely recovered little changed.

VRTX shares and DoubleVerify are on the 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 fell 0.15% vs. fair value. S&P 500 futures lost 0.1% and Nasdaq 100 futures fell 0.2%.

The 10-year government rate rose 4 basis points to 3.75%.

Keep in mind that overnight action in Dow futures and elsewhere does not necessarily translate into actual trading in the next regular session.


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Stock market Wednesday

The stock market opened mixed, but soon gained momentum, and eventually had a clearly positive session.

The Bank of England announced early Wednesday that it would buy long-term British bonds, a major policy reversal. Gilt yields had risen in recent days while the pound had plunged as new British 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. This in turn led to a long-awaited rise on the stock exchange.

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

Apple is reportedly reining in production plans for the iPhone, as an expected surge in demand has apparently failed to materialize. The Dow tech titan told suppliers it aims to make 90 million phones, flat from a year earlier. Apple shares finally closed down 1.3% at 149.84 after skidding to 144.84 during the day.

The 10-year government yield fell 26 basis points to 3.71%. In overnight trading, the 10-year Treasury yield briefly hit a 12-year high of 4.005% ahead of the BoE’s bond-buying plan.

The dollar fell solidly on Wednesday, but gave only a fraction of the big gains of the past few days. The dollar has increased over the past year.

ETFs

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

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

ARK Innovation ETF ( ARKK ), reflecting more speculative history stocks, rose 4.7% and ARK Genomics ETF ( ARKG ) rose 6%.


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Stocks to watch

LLY stock jumped 7.5% to 334.38, breaking 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 the daily range. The relative strength line, which was already at highs, rose again. Nevertheless, 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 encouraging news for a rival’s drug, especially given the historic struggles to find effective treatments for Alzheimer’s? 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, indicating an aggressive entry. Vertex stock has a buy point at 306.05 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 disorder.

REGN stock climbed 1.5% to 705.42, closing just below a brief downtrend line after clearing that level during the day. Regeneron shares are consolidating after a brief rise to a record high in early September on positive clinical data for the already approved Eylea drug. The RS line is at a two-year high.

Cardinal Health shares fell 4.65% to 69.29, breaking a brief downtrend and clearing the 21-day moving average. That extends Tuesday’s bounce from the 50-day moving average. CAH stock could form another consolidation after running higher in July and August.

DoubleVerify shares rose 2.9% to 27.85, continuing to bounce off the 50-day line, albeit on low 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, reclaiming its 50-day moving average and 21-day line. Cheniere Energy and other LNG plays appear to have a long-term growth story.

ALB stock rose 3.1% to 277.95 and continues to find support from the 50-day line. While technically close to an old buy point, investors may want to see a new base form, or perhaps pause a bit longer before jumping higher.

Stock market analysis

The stock market finally had a real bounce for an entire session. The major indexes rose sharply on Wednesday in response to falling government yields and a falling dollar. Treasuries reacted to the Bank of England’s move to temporarily buy UK bonds.

As the Bank of England showed, central banks can reverse policy quickly when financial markets come under stress. So it is possible that at some point Fed policy could change abruptly. But the Fed seems comfortable with “just” a bear market, and willing to risk an outright recession.

In any case, the market setback was not that surprising given oversold conditions, rising bearish sentiment and other factors. The major indices are still right in the bear market. Investors should look for real signs of market strength.

A follow-up day to confirm another rally attempt would be a positive signal, although investors should still be very cautious in such a scenario. A follow-up day on one or more of the major indices is still a few days away.

As a practical matter, any recovery in the stock market is likely to depend on whether Treasury yields continue to retreat. But Treasury yields are likely to remain in an upward trend as long as the Federal Reserve aggressively raises interest 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 is still a bear market. The major indices are right at their lowest level. Stocks are at the mercy of Treasury yields, which are at the mercy of the Federal Reserve. But the Fed takes a Cobra Kai mentality: “Strike first. Strike hard. No mercy.”

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

If you decide to buy stocks with flashing buy signals, such as Eli Lilly or Vertex, consider treating them as swing trades and get partial or full profits very quickly. The risk of reversal is very high, especially if the market resumes selling.

A market rally attempt is Started. So investors should work on their watch lists. 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 market direction and leading stocks and sectors.

Follow Ed Carson on Twitter at @IBD_ECarson for stock exchange updates and more.

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