S&P 500 reaches three-week high as health stocks rally ( + a gem from Heritage Capital)

Another bumpy but upwardly mobile ride today as the Dow swung back and forth in a 200 point range.  But due to another healthy bounce in the healthcare sector, the index ended up a nice 122 points.  I guess investors decided today that the coming drug pricing scandal is not really going to have its impact for awhile so it was okay to pick up bargains again.  The markets were also helped by a bump in gold and silver.  But Q3 got its first hint of ugliness today when Yum! Brands, which does one-half of its business in China, reported weak sales due to China and its stock sunk nearly 20%.  But the comeback in commodities is providing some reassurance that perhaps the worst of the China impact is behind us.  (Hmm ... it may be a bit premature to say that on the basis of a one-day bounce.)  Anyway, the S&P is now down just 3% for the year, and the Dow just 5%, which means the markets overall are still a very long way from correction territory.  Trading was quite healthy at 8.3 billion.

On a more long-term note, you're all aware of the daily blog posted by Heritage Capital Research which you can sign up for free at heritagecapitalresearch.com.  This would ordinarily be something I would save for the Sunday bonus, but today they presented us with quite a little gem which he calls his "Deserted Island Model."  It basically posits that if you ever find yourself stranded on a deserted island and therefore, due to no time or resources, you need the world's simplest system that practically runs itself to keep your money working for you, this is it.  He presents a single indicator to track that has consistently beaten the S&P by 70% since 1980 and has only required 12 switches in that 35 year period.  Since we are always looking for powerful but simple new strategies,this seems like one that is well worth further study.

Markets | Wed Oct 7, 2015 5:37pm EDT

S&P 500 reaches three-week high as health stocks rally

BY NOEL RANDEWICH

DJ:  16,912.29  +122.10           NAS:  4,791.15  +42.79        S&P:  1,995.83  +15.91

(Reuters)  U.S. stocks ended stronger after a volatile session on Wednesday, led by a rebound in biotechnology companies that pushed the S&P 500 to its highest level in three weeks.

Materials shares also rose, helped by rising gold and silver prices.

Investors' focus is turning to earnings, and Yum! Brands was the S&P's biggest loser after reporting weak sales out of China, which accounts for more than half of its revenues.

Yum! Brands slumped 18.83 percent after the restaurant operator cut its full-year profit forecast, citing a slower-than-expected recovery in its key China market and the drag from a strong U.S. dollar.

The S&P health index, up 1.47 percent, was the biggest gainer. A selloff in healthcare and biotech stocks had weighed on the market on Tuesday.

Healthcare was led by Regeneron Pharmaceuticals and Amgen, both up more than 4 percent. Express Scripts said it reached deals to cover two costly new cholesterol drugs produced by the two companies.

“On days where investors are looking for fallen angels, healthcare helps fill that equation today,” said Art Hogan, chief market strategist at Wunderlich Securities in New York. "What was a drag over past few days is now the leader."

The S&P materials index rose 1.34 percent and the S&P energy index was up 1.33 percent even after U.S. crude settled down 1.5 percent.

Gold and silver futures have been climbing in recent sessions and are up since the end of September, giving a boost to materials shares.

Gains in U.S. indexes, even after the reversal of an oil rally, suggest that the worst might be over for commodity prices hit by concerns about China's economy, said Warren West, principal at Greentree Brokerage Services in Philadelphia.

"We’re not so worried about commodities, we think they're finding a bottom here," West said.

The Dow Jones industrial average rose 0.73 percent to end at 16,912.29.  The S&P 500 ended 0.8 percent higher 1,995.83 after trading down 0.18 percent earlier in the day.  The Nasdaq Composite added 0.9 percent to 4,791.15.  After Wednesday's rise, which was its sixth in seven sessions, the S&P is down 3.09 percent for the year. The Dow is off by 5.11 percent.

S&P 500 companies are now expected to report a 4.4 percent fall in third-quarter profit, the biggest decline in six years, according to Thomson Reuters data. The index is trading around 15.5 times expected earnings, in line with its long-term average.

Twitter jumped 8 percent after Saudi Arabian billionaire Prince Alwaleed bin Talal and his investment firm raised their stake to more than 5 percent.

Advancing issues outnumbered declining ones on the NYSE by 2,385 to 670 On the Nasdaq, 2,061 issues rose and 776 fell.

The S&P 500 index showed eight new 52-week highs and no new lows, while the Nasdaqrecorded 48 new highs and 34 new lows.

About 8.3 billion shares changed hands on U.S. exchanges, above the 7.4 billion average for the previous 20 sessions, according to Thomson Reuters data.

A LITTLE GEM:

If I Were Stranded On A Deserted Island... - Heritage Capital Research