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S&P 500 Undercuts Bear Market Low As Treasuries Race Towards Key Level; What to do now




Dow Jones futures rose modestly overnight, along with S&P 500 futures and Nasdaq futures. The stock market saw another opening rally on Tuesday as the 10-year government yield rose towards 4%. The S&P 500 fell to a bear market low, but the major indexes rose 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 retreated from early peaks as the indices reversed. Enphase Energy (ENPH), a day after a reversal to the downside, regained key support even after paring intraday gains. Tesla (TSLA) and Shockwave Medical (SWAV) is hitting resistance at its 50-day lines.

Meanwhile, lawyers for Tesla CEO Elon Musk and Twitter (TWTR) met on Tuesday in a new 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 get Musk to go through with the deal, and Tuesday’s hearing appeared to reinforce that.

Twitter shares rose 1.4% to 42.11 on Tuesday. TWTR climbed modestly in late trading as the hearing continued.

After the conclusion, the egg giant Cal-Maine Foods (CALM) reported stronger earnings than expected. Cal-Maine revenue soared as revenue growth accelerated for the fifth consecutive quarter, to 103%. ROLIG stock went down overnight. Shares rose 1.4% to 60.53 on Tuesday, on the edge of a buy zone.

ENPH stock and Vertex 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 stock.

Dow Jones Futures today

Dow Jones futures rose 0.2% relative to fair value, with S&P 500 futures up 0.3%. Nasdaq 100 futures rose 0.4 percent.

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


Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live


Stock market Tuesday

The stock market once again tried to bounce near the open, with stronger, broader gains on Tuesday morning than on Monday. But as the 10-year Treasury yield rose to a new 12-year high, driven by a series of stronger-than-expected economic reports at 10 a.m. ET, the major indexes turned lower, with the S&P 500 breaking below its June lows. However, indices rose to close narrowly mixed.

The Dow Jones Industrial Average fell 0.4 percent in Tuesday’s trading. The S&P 500 index lost 0.2 percent. The Nasdaq composite rose 0.25%. The small-cap Russell 2000 climbed 0.3%.

The 10-year Treasury yield rose 9 basis points to 3.96%, reaching 3.99% intraday. The 10-year yield has not topped 4% since April 2010. The two-year government yield is at 4.3%, edging lower on the session.

The 30-year UK gilt yield reached 5% on Tuesday. The new British government plans to borrow heavily for tax cuts, while investors are betting that the Bank of England will have to push up interest rates sharply to support the pound. The pound bounced 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 their lowest levels since January.

ETFs

Among the top ETFs, the Innovator IBD 50 ETF (FFTY) rose 1.1%. The iShares Expanded Tech-Software Sector ETF ( IGV ) rose 0.7%. The VanEck Vectors Semiconductor ETF ( SMH ) rose 0.8%.

SPDR S&P Metals & Mining (XME) rose 2.8%. US Global Jets (JETS) rose 1.6%. SPDR S&P Homebuilders (XHB) rose 0.4%. The Energy Select SPDR ETF (XLE) was up 1.1% and the Financial Select SPDR ETF (XLF) was down 0.4%. The Health Care Select Sector SPDR Fund ( XLV ) fell 0.3%.

ARK Innovation ETF ( ARKK ) and ARK Genomics ( ARKG ) reflect stocks with more speculative histories, both up 2.1%. Tesla stock is a top holding across Ark Invest’s ETFs.


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Stocks to watch

Vertex shares rose 2.9% to 284.74. Intraday shares hit 289.52, clearing the 50-day line and reaching a downtrend line. In a better environment, it would have a buy signal, but VRTX stock faded along with the market. The relative strength line hit yet another 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 it will begin seeking FDA approval for the first approved treatment using the CRISPR gene-editing technique. The treatment will be for sickle cell disease and beta thalassemia.

WWE stock rose to 69.95 intraday, crossing the 50-day mark and reclaiming an older buy point of 68.83. It flirted with an early entry, but WWE stock reversed lower before rallying for a 0.75% gain to 68.20. The wrestling media outfit has a flat base with a buy point of 75.33, according to MarketSmith.

ENPH shares rose 3.6% to 284.81, reclaiming the 50-day line. Intraday shares hit 294.80, but hit resistance at the 21-day moving average.

SWAV stock climbed modestly for a second straight session, up 2.4% to 260.83. But stocks hit resistance at the 50-day line. So far this week, Shockwave stock has been up modestly on less volume after falling 11.7% last week.

Tesla shares climbed 2.5% to 282.94 on Tuesday. But shares are hitting resistance at the 50-day line, giving a small boost from 288.67 intraday. TSLA stock has a buy point at 314.74 from a short base within a much larger consolidation. Tesla is holding AI Day on Friday, with global deliveries for the third quarter likely over the weekend.

Stock market analysis

For a second straight session, bulls tried to fight back on the open. The Nasdaq rose as much as 2.2% a few minutes into Tuesday’s session, surpassing Monday’s high.

But as Treasury yields roared higher once again, the major indexes reduced, erased and reversed those gains.

However, the S&P 500 is below the June 17 low. The benchmark index joined the Dow Jones, which broke below its June 17 low on Friday. The Nasdaq has yet to undermine its bear market lows in June or even Friday’s intraday lows.

Even with returns holding intraday highs, the major indexes bounced back to near mixed.

The Cboe volatility index, or VIX, rose to a new three-month high, backing up intraday highs as stocks rallied late. The market fear gauge is at a level that could signal at least a short-term bottom, but that could have been said in the last few days. Nor is the VIX necessarily at a level that suggests a long-term bottom in the bear market is at hand.

The market’s inability to bounce back for more than a few minutes is not encouraging. But even if the major indexes bounced solidly for a full day or two, it 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 matched the rally with the market, including WWE, Shockwave and Tesla shares.

The bear market may be on the way to start a new phase down. It is still possible for the market to fall around the bottom in June, although it does not have to mean a quick shift to a strong uptrend. It is quite possible that the market could be range bound near lows for weeks or months.

It’s hard to see the S&P 500 and the stock market in general having a sustained rally with government yields and the dollar soaring. Perhaps the 10-year yield will hit resistance around the 4% level. A pullback could spur a stock market pullback.

Nevertheless, Treasury yields are unlikely to break the uptrend until the Fed signals slower rate increases going forward. Politicians 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 peak earlier, but that is likely to reflect expectations of a clear US recession. Going into a recession is not exactly a recipe for a stock market boom.

Still, markets are now tipping just slightly toward a fourth straight rate hike of 75 basis points in November. The markets are now roughly divided between a fed funds rate at the turn of the year of 4%-4.25% versus 4.25%-4.5%, a slight decrease from Monday.


Time the market with IBD’s ETF market strategy


What to do now

The past two days have shown the dangers of buying stocks during a strong opening 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 starts and sets up a follow-up day in the near future, there will probably be reason to be cautious. The major indexes will have several levels of resistance, while still likely to be at the mercy of the Federal Reserve and the bond market.

Continue to have plenty of money and work on your watchlists. Relative strength is most important. But many kin managers are struggling and are below their 50-day limits.

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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