Shaken Wall Street is waiting for a final surrender to buy the green light

Shaken Wall Street is waiting for a final surrender to buy the green light

Written by Alden Bentley

(Reuters) – Even as investors jammed exits on Tuesday, Wall Street’s strongest one-day jolt since the start of the pandemic in June 2020 bore few hallmarks of capitulation that analysts want to see before bottoming.

While Tuesday’s 4.3% decline partially extended in early trading on Wednesday, it held nearly half a percent above the 3900 technical area that appears pivotal to mitigate the decline to the June bear market low around 3666.

The benchmark S&P index closed up about 0.35% on Wednesday. The Nasdaq rose 0.75% after Tuesday’s 5.2% drop – the result of a surprisingly hot August consumer price reading that fueled speculation that the Federal Reserve will tighten interest rates aggressively next year and push the economy into recession.

Brian Levitt, chief global strategist at Invesco, said the usual signs that the market had exhausted itself with selling, ditched weak and long positions, and was ready to find a bottom were not clear.

For example, the market fear index, the CBOE Market Volatility Index, rose to its highest level since July on Tuesday. But it settled at around 26 on Wednesday, staying below the levels above 30 seen when the market crashed in June.

Graphic: The Bear Markets

Even at that time, when it became clear that stocks were in a bear market, the lack of clear signals had analysts looking to California.

Pity indicators and exit short and far from confidence to give “everything clear” to buy again.

High yield credit spreads have widened but not as much as they tend to in times of extreme stress. There has been no clear transition from stocks to cash security or Treasuries.

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โ€œI think investors after what happened during the financial crisis or the early days of Covid, they might have a fear of missing out on what would have been a comfortable recovery, and quite frankly, we had a great event in July through the beginning of August,โ€ Levitt said.

He also noted that small investors did not panic.

“This is largely due to recent memory, the realization that they tend to sell at the wrong times,” he said. “So perhaps the investing public will learn their lesson a little.”

Analysts at Evercore ISI are watching the September 6 S&P 500 “swing low” at 3,886 and consider it, which is hovering near 20-year highs, a barometer of global risk.

Fresh dollar highs open up the S&P 500 to retest June lows, they wrote on Wednesday, โ€œwhich is likely to produce ‘desired capitulation’ trading for VIX >40, absent throughout 2022. Our base case remains high volatility with final quarter high. The fourth is about 4,200 points at the end of the year.โ€

Meanwhile, the breadth of the pullback makes it look like the market will be able to maintain lows from June, according to Sam Stovall, who noted that all sub-industry indices in the broader S&P 1500 are trading above the 50-day movement. The average on Tuesday was only 7% above the 200-day moving average. “At any time since 1995 we’ve seen such a supply drift, this has signaled a bottom for a bear market or a correction,” Stovall said. As for the S&P 500 Index, Stovall noted that the benchmark index has already regained 50% of its bearish market movement in the January-June 2022 period on August 12, and that the index did not hit a new all-time low after recovering 50% of what it was previously. Lost.

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Art Hogan, chief market strategist at B. Riley Wealth, said in his daily note to a client that it’s important to put the painstaking sell-through in context.

Hogan wrote: “As the day came on, the S&P 500 had four consecutive positive days, gaining 5.5%. Tuesday’s sharp drop brought the large corporate index back to where it was last Wednesday.” โ€œThe S&P 500 is still 7.2% above its June lows. The important 3900 support level held yesterday, another constructive data point.โ€

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