In the New Year, the selling that Wall Street is known for became poor enough to begin to draw buyers in, yet it still is too soon to see if they’ll look
battered or brilliant within the future.
The steep dips sent over mixed signals concerning a bottom in the market. Many technical indicators – for example, the amount of stocks that hit new lows – pointed toward a recovery in the market that is coming soon.
However, there are still negative factors remaining. The U.S. outlook for corporate earnings continually worsens, and is concerned with more dips from weaker Chinese demand as well as low oil prices continue. S&P 500 might decline an additional 8 percent prior to obtaining the title “bear market”. Some investors in the market still have a desire to witness more blood prior to them buying.
Recently, there were almost 1,500 new 1-year lows upon the NYSE, the most lows for any date since November of 2008. Traditional market action proves that following days of this type of broad selling, purchasers might want to step in so they could take advantage of these lower prices.
The prior five times where over 1,000 New York Stock Exchange factors reached a 52-week low, the median gain upon S&P 500 after a month was close to 12 percent, an indication that purchasers were tempted by cheaper price of shares. If this pattern repeats—that median gain from last Wednesday’s low might take S&P 500 beyond 2,000 by the end of February.
Some traders, however, still are on the lookout for a “capitulation-like” session, where negative volume will overwhelm positive and an irrational sense of doom will take over this market. Typically, the fears that accompany a bottom in the market haven’t yet been seen.
According to director of the NYSE floor division at New York’s O’Neil Securities, Ken Polcari, he does not believe we have yet reached capitulation. It absolutely has been ugly, yet for thee to actually be a bottom, it has to be one of those days in which it will get so ugly it is nearly panicky.
Technical analysts such as Raymond James and Andrew Adams believe more selling must occur. He said in a note, ‘While we don’t anticipate an additional major collapse in the market like we’ve seen within the last 15 years, it makes sense to be careful at those levels because the market is tossing red flags up by breaking through its crucial support.’
S&P 500 closed at its lowest since the month of October of 2014 upon reaching its lowest level within nearly 2 years. But some predict that the index will dip even further prior to the reverse of this downward trend. S&P 500 ended right under 1,860, down for 2015 by 9 percent and 12.7 percent from their record high. In order to confirm it’s an official bear market, it’d need to decline more than 8 percent more to close to 1,704.
According to different technical analysts, the next support level is from 1,750 to 1,770.
Additional analysts believe they will witness dips until 2015’s best performers, which include Cablevision, Nvidia, Activision Blizzard, Netflix and Amazon fall further.
In 2016, these 5 stocks have declined 13.5 percent so far upon doubling in price last year as a group. It left a lot of room for long-term traders to sell then still come out winners.
Federal Reserve Rescue
Fed policy makers consistently have said they aren’t targeting prices of stocks while dictating financial policy, yet they’ve helped markets for most of the past 7 years by injecting cash via asset purchases and keeping interest rates low.
The Federal Reserve expects to increase United States interest rates 4 times in the year 2016 after initially doing it last December in almost 10 years. For the initial time this year, the Fed’s policy setting committee will meet and their follow-up statement, which is expected on January 27, is going to be combed for a position that is more dovish, and entice the bulls back to stocks.
According to BB&T Wealth Management with Birmingham’s Bucky Hellwig, to the extent that the Fed backs off their rate increase trajectory, it is going to offer an inflection point within the market.