S&P 500 (SPY) Rallies As Dollar Pulls Back From Highs

Key Insights

  • Weaker dollar and lower Treasury yields provided significant support to stocks today. 
  • Energy stocks enjoyed support amid a strong rebound in the oil market. 
  • A move above 3700 will push S&P 500 towards the resistance at 3725.

Stocks Rebound After Sell-Off

S&P 500 gained strong upside momentum and moved towards the 3700 level as traders rushed to buy oversold stocks.

The U.S. Dollar Index touched highs near 114.50 but lost momentum and pulled back towards the 113 level, providing material support to stocks.

Treasury yields have also moved lower. The yield of 10-year Treasuries declined from 4.00% to 3.75%, while the yield of 2-year Treasuries moved from 4.30% to 4.15%. Lower Treasury yields served as an additional positive catalyst for stocks.

The rebound is broad, which is not surprising as S&P 500 was oversold. Energy stocks enjoy strong support as WTI oil moved back above the $80 level. Marathon Petroleum, Hess, and Valero Energy are up by more than 4% in today’s trading session.

Basic materials stocks have also moved higher amid a broad rebound in commodity markets. The leading gold producer Newmont gained more than 3%, while copper producer Freeport-McMoRan is up by more than 2%.

Biogen gained 38% after the company revealed that its Alzheimer’s drug lecanemab was successful in a late-stage trial. Eli Lilly, which also develops a similar drug, is up by 8% today.

From a big picture point of view, traders will likely stay focused on the dynamics of U.S. dollar and Treasury yields. Demand for the U.S. dollar highlights the dynamics of demand for safe-haven assets. In case the U.S. dollar continues to move lower, stocks will get more support.

S&P 500 Tests Resistance At 3700

S&P 500

S&P 500 is currently trying to settle above the resistance at 3700. In case this attempt is successful, it will move towards the next resistance, which is located at 3725. A move above 3725 will push S&P 500 towards the resistance at 3750. If S&P 500 manages to settle above this level, it will head towards the resistance at 3780.

On the support side, a move below 3700 will open the way to the test of the support at 3660. If S&P 500 declines below this level, it will head towards the next support level at 3635. A successful test of this level will push S&P 500 towards the support at 3600.

For a look at all of today’s economic events, check out our economic calendar.

Top 4 Things Traders Have to Know Today

What is happening with Meta, Paypal and Spotify?

Spotify didn’t actually issue annual guidance, which seems to have exacerbated worries about potential subscriber growth potential. All three were down by double-digits in after hours trading at one point last night.

Competition is clearly much more fierce as larger players are starting to dial it in and use the latest technology to gain better traction i.e. Visa, Mastercard, etc. I also read reports this week that Apple is diving deeper into the payment and banking space and will soon be able to offer all kinds of options via the smartphone.

In simple terms, I wonder if PayPal executives could see they had a “growth” problem and that’s why they took a look at Pinterest a few months back. I heard rumors yesterday perhaps they might be looking at Robinhood.

At the moment the stock market just doesn’t seem real forgiving to those who swing and miss. On a somewhat positive note, Facebook disclosed they purchased back +$20 billion of their own stock in the last quarter.

Bulls are hoping for solid results from Amazon and Snap today to help prevent sentiment in the tech sector from creating more fallout. I’m not holding my breath!

Data to watch

Results are also due from Activision Blizzard, Biogen, Carlyle Group, Check Point, Cigna, Clorox, ConocoPhillips, Deckers Outdoors, Eli Lilly, Estee Lauder, Ford, Hanesbrands, Hershey, Honeywell, Ingredion, Merck, Pinterest, Quest Diagnostics, Royal Dutch Shell, SnapOn, Wynn Resorts, and Xylem.

On the economic data front, Factory Orders, the ISM Non-Manufacturing Index, and Productivity and Costs are due today. Productivity and Costs has become a more closely watched report as worries about climbing wages have grown. In the third quarter, productivity fell -5.2% (the most since 1960) and labor costs rose +9.6%.

Obviously, weakening productivity and rising costs is a bad combo for corporate profits so reversing this trend is a high priority. It may be tough to find much relief in the near-term with the labor market expected to remain extremely tight.

The shortage of workers has also been exacerbated by the latest Covid wave. ADP’s private payrolls report yesterday showed a decline of -301,000 jobs for January versus the estimate for a +200,000 gain, the first reported net job less since December 2020 according ADP.

Covid issue

Most analysts blame last month’s Covid surge for the decline and expect it is just temporary. The official January Employment Report on Friday is expected to show a gain of around +150,000 jobs, though the government has warned that the data won’t be reliable due to Covid-related reporting problems. Hopefully we’ll soon stop hearing that excuse as the Omicron Covid wave does seem to be burning itself out in the U.S. Case numbers across the country are about half of what they were in mid-January.

Hospitalizations have finally started to come down, too, which experts say is a more reliable measure. I hate to mention it but health officials are currently monitoring a mutated strain of Omicron known as “BA.2″… when does it end?

The standoff between Ukraine and Russia

Also still on the radar is the standoff between Russia and Ukraine. The U.S. is now readying to send more than +3,000 troops to bases in Eastern Europe as new satellite images appeared to show an even further increase in Russian troop buildup on Ukraine’s borders. Whether or not war is a realistic threat or not, the climbing tensions continue to stoke the flames in the energy markets.

Brent crude futures are trading near $90 as OPEC struggles to meet production targets and global physical supplies continue to tighten. The 19 OPEC+ countries with quotas underperformed their production targets by -832,000 b/d in December. Russia is currently the top OPEC+ producer, so any disruption to those supplies runs the risk of shooting oil prices even higher. Take note the front-end of the natural gas market is up over +50% in the first month of the new year. It’s certainly going to be a wild ride in 2022!

 

Brace Yourself For Another Wild Month In Stock Markets

For the year, the Dow is down -6%, the S&P 500 is down just over -9%, and the Nasdaq has lost -14.7%. The previous record-holder is January 2009, an ugly moment for the economy, when the stock market fell -8.6%. In addition, the VIX – aka the CBOE Volatility Index – has actually dropped back to around 31 after topping 37 earlier this week, its highest point since November 2020.

Keep in mind, the index isn’t registering anywhere close to levels reached during other periods of “extreme” volatility. For example, the index, which is measured between zero and 100, hit its highest point of almost 83 during the financial crisis in 2008. Its most extreme point during the pandemic was around 66 in March 2020. So, by comparison, this week’s volatility has been rather mild.

Federal Reserve

Some insiders equate the wild swings in stock prices to investors, particularly “big money,” trying to establish a new baseline for stock valuations minus the Fed’s easy money policies that have driven a massive amount of cash into markets since the pandemic began in 2020.

At its height, the Fed was pumping as much as +$120 billion per month into the system via its asset purchase program, ballooning its balance sheet to now nearly $9 trillion.

At the same time, the Fed has held its benchmark rate at near-zero and, before that, hadn’t even attempted to raise rates since 2018, and then only briefly. The last full-cycle of rate hikes was 2015. What’s more, investors haven’t really had to factor for inflation since the early 90s and it hasn’t been this high since the 80s.

Bottom line, whatever the new “normal” ends up looking like, it will be dramatically different from the pre-pandemic investing landscape. I’ve heard several large stock traders saying it seems to be the return of Alpha instead of the race to levered Beta. I hear others on Wall Street referencing it to a bit of league recreational youth baseball team where everybody now gets an award simply for participation, but then kids run into a rude awakening when performance really starts to matter.

It feels like we are there in the stock market; every business that was coming into the market was simply being rewarded with participation points, now people are starting to keep a real scorebook and counting the strikeouts and runs scored.

Economy still roars

The good news is that the U.S. economy continues to roar. Historically, a combination of moderate inflation and moderate interest rates has led to some of the biggest boom times for U.S. Last week, the Commerce Department said Q4 Gross Domestic Product (GDP) grew at an annualized rate of +6.9%, stronger than Q3’s +2.3% and well above Wall Street expectations of around +5.7% growth.

Consumer spending climbed at a +3.3% annual pace led by a +4.7% increase in services spending. But the real stand out was private investment which rocketed +32% higher, boosted by a surge in business inventories as companies stocked up to meet higher customer demand. Rising inventories, in fact, contributed nearly +5% to Q4 GDP growth.

On the one hand, the inventory build is positive because it indicates an easing of supply chain dislocations that should in turn help with inflation pressures. On the other hand, many economists note that the big boost from retailer and wholesaler restocking is not likely to be repeated.

Companies will also likely start to unwind at least some of that inventory in the quarters ahead, which could drag overall 2022 GDP, especially if consumer spending also drops off. And investors are more closely tracking consumer behavior as inflation continues to rise.

With consumer spending accounting for about 70% of the U.S. economy, any signs that belts are tightening or moods are getting overly pessimistic will likely set off some alarm bells.

Data to watch

Turning to next week, it will be another busy one for both key economic data as well as earnings. The main economic data highlight will be the January Employment Situation on Friday. Other key data includes ISM Manufacturing, Construction Spending, and the JOLTS report on Tuesday; ADP’s private payrolls report on Wednesday; Productivity & Costs, Factory Orders, and the ISM Non-Manufacturing Index on Thursday.

Earnings wise, results are due from NXP Semiconductor and Trane on Monday; Advanced Micro Devices, Alphabet, Amgen, Chubb, Electronic Arts, Exxon, General Motors, Gilead Sciences, Match Group, PayPal, Sirius XM, Starbucks, and UPS on Tuesday; AbbVie, Aflac, Allstate, Boston Scientific, CNH, Corteva, D.R. Horton, Ferrari, Humana, Johnson Controls, Meta (Facebook), MetLife, Novartis, Novo Nordisk, Qualcomm, Siemens, Thermo Fisher, TMobile, and Waste Management on Wednesday; Activision Blizzard, Amazon, Biogen, Carlyle Group, Check Point, Cigna, Clorox, ConocoPhillips, Deckers Outdoors, Eli Lilly, Estee Lauder, Ford, Hanesbrands, Hershey, Honeywell, Ingredion, Merck, Pinterest, Quest Diagnostics, Royal Dutch Shell, Snap, SnapOn, Wynn Resorts, and Xylem on Thursday; and BristolMyersSquibb, CBOE, Phillips 66, Regeneron, and Sanofi on Friday.

Bottom line, brace for another huge week of extreme volatility.

Samsung in Talks to Acquire US Drug Manufacturer Biogen

South Korean tech giant Samsung is reportedly in talks to acquire Biogen, but the deal is still in its early stages.

Samsung Could Acquire Biogen for $42 Billion

Korea Economic Daily reported earlier today that South Korea’s Samsung Group is currently in talks to acquire Biogen in a deal that could be worth as high as $42 billion. The United States drug manufacturer is currently valued above $34 billion, but Samsung could acquire it for more than $40 billion.

According to the report, Biogen approached Samsung to acquire its shares, and the two companies are now in discussion over a potential deal. If the deal goes through, it would be the overseas acquisition ever by a South Korean company. Samsung currently holds the record of the largest overseas Korean acquisition after it bought auto electronics maker Harman International Industries in an $8 billion deal.

Earlier this year, Samsung Group earmarked $206 billion to spend in various areas, including biopharmaceuticals, artificial intelligence, semiconductors and robotics. The funds would represent the company’s entry into a new era following the Coronavirus pandemic.

BIIB Rallies Following Acquisition News

Biogen refused to comment on its possible acquisition by the South Korean conglomerate. However, the shares of Biogen surged by nearly 10% today following the report of a possible acquisition.

BIIB is up by 9.50% today and is currently trading above $250 per share. Since the start of the year, BIIB’s value has increased by more than 5%, making it one of the underperformers in the pharmaceutical industry.

Earlier this year, the company’s controversial Alzheimer’s drug won United States FDA regulatory approval. Biogen is the first company to gain approval for an Alzheimer’s drug for the first time in 20 years in the United States.

Biogen expects the new drug to help it recover its position in the market as some of its drugs, like multiple sclerosis treatment Tecfidera and muscle disease treatment Spinraza, currently face tough competition.

Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval

The FDA issued an accelerated approval status for Biogen’s new Alzheimer drug with specific requirements related to consumer use and results.  In these cases, the FDA is allowing Biogen to move into a more open consumer trial where the results and side-effects of this new drug will be identified fairly quickly.

This new drug targets the plague in the heart and brain that is associated with Alzheimer’s.  Over five million Americans live with some form of Alzheimer’s currently.  The Alzheimer’s Association continues to provide detailed statistics related to how this disease relates to various segments of American society.  You can read more about how big this announcement is in terms of how Alzheimer’s affects Americans in this 2019 Alzheimer’s Disease Facts And Figures report.

This news of a new Biogen Alzheimer’s drug has sent XBI skyrocketing – yet the news may not be enough to continue to trend across an entire market sector.  The one thing that I would like to point out is that news of a single drug that has entered early-stage accelerated approval by the FDA does not make a new trend – it makes a news blip.

Either way, the long-term results related to the potential success of this new drug may prompt a rally in Biogen and the Biotech sector over the next few months and years. Alzheimer’s is a big problem for many nations across the globe so the potential for this new solution, if priced well, may be huge for Biogen.

The Daily XBI chart below shows a clear downward price channel (CYAN line) that is acting as resistance.  XBI must rally above this level in order to prompt any bigger upside price trend.  As of right now, XBI has rallied up to that level but has stalled near that resistance.  It is likely that the news prompted a big upside trend, however, the reality is that we won’t know how successful this new drug is for Biogen for many months/years.  So, the real opportunity could be a ways away still.

The Weekly XBI chart below highlights recent support near 118.40 (the MAGENTA line) and continues to show the downward sloping resistance channel (the CYAN line).  We believe XBI will have to break out of these price boundaries before it starts any new trends.  Currently, the upside price rally is testing the upper resistance levels.  If it breaks above that level quickly, we may see some bigger upside trending.  If not, it will likely fall back into the range of these boundaries while attempting to find support again.

What does our proprietary BAN strategy say about this new XBI trigger?  Currently, XBI is reporting as BEARISH and is in a RISK OFF trend mode. XBI is also trending/ranking near the bottom of our BAN ETF sector list – meaning that XBI is showing very limited upward trend strength at the moment. This recent news may change that over the next few weeks.  Due to these factors, XBI is not something that BAN would be trading at the moment.

Do you want to know which sectors are ranking near the top of the BAN hotlist?  To know where new BAN trade triggers are being generated and where you will find bullish trend momentum and strength?  New BAN triggers are generated almost every week – are you missing out?

Learn how my BAN Trader Pro Strategy can help you identify and trade better sector setups.  My team and I built this technology to help us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

Have a great day!

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen
Founder & Chief Market Strategist
www.TheTechnicalTraders.com

 

Biogen Shares Soar to All-Time High On Alzheimer’s Drug Approval

Biogen shares soared as much as 64% to a record high on the news that the Cambridge, Massachusetts-based biotechnology company receives approval from the U.S. Food and Drug Administration for Alzheimer’s treatment ADUHELM (Aducanumab).

The U.S. Food and Drug Administration’s decision to approve this treatment will be the first in almost two decades. The food and drugs regulator press release did not talk about any major safety issues, which could help grant ADUHELM a clean label in the future.

Biogen shares surged as much as 64% on the news and finished the day up 38% at a new record high of $395.85 on Monday.

Analyst Comments

“We update our model for Aduhelm approval. We see the investor debate moving to launch speed (including how payers will respond), availability of infusion sites, and post-approval regulatory requirements. Given the limited competition and broad patient need, we expect a robust launch with limited access issues,” noted Matthew Harrison, equity analyst at Morgan Stanley.

“Price target to $455 on approval: We now reflect 100% of our expected revenues (versus 65% prior). We have slightly lowered our penetration as we assume more abandonment/payer pushback given the higher-than-expected price. The lower penetration is more than offset by increasing our assumed net price from $20,000 to $35,000 (the wholesale price is $56,000). We await further details from mgt. on their call tomorrow morning.”

Biogen Stock Price Forecast

Twenty-two analysts who offered stock ratings for Biogen in the last three months forecast the average price in 12 months of $359.06 with a high forecast of $458.00 and a low forecast of $244.00.

The average price target represents a -9.29% decrease from the last price of $395.85. Of those 22 analysts, 11 rated “Buy”, 11 rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley raised the stock price forecast to $455 from $343 with a high of $694 under a bull scenario and $196 under the worst-case scenario. The firm gave an “Overweight” rating on the biotechnology company’s stock.

Several other analysts have also updated their stock outlook. Jefferies raised the target price to $500 from $450. Piper Sandler lifted the target price to $384 from $260. Oppenheimer upped the target price to $450 from $325.

“Today we are upgrading shares to Outperform, and increasing our price target from $225 to $450,” noted Phil Nadeau, equity analyst at Cowen.

“We assume penetration of the 1.5MM mild Alzheimer’s patients will grow to 8% by 2025, yielding $7B in revenue. Our 2025 Non-GAAP EPS estimate has increased from $21.40 to $37.05. We expect revenue to grow to $7B by 2025. We expect Aduhelm’s launch to drive a 13% revenue CAGR for Biogen for the period of 2021-25, among the highest in large-cap biotech.”

Check out FX Empire’s earnings calendar