Wall Street Strategists Hunt for Good Omens on US Stock Slide
After succumbing to full-blown fear this month, analysts are looking for signs on sentiment and positioning.
Chart pros are pointing to reasons for cheer, even if they see plenty cause for concern.
1. Investors hoping that negative sentiment has already peaked might be disappointed that stocks didn't close last week below the year-to-date low and that there wasn't a bigger spike in the Cboe Volatility Index to signal panic.
Those looking for signs of oversold conditions could take solace in the number of stocks now trading below their 50-day moving average, according to Jacobson at Susquehanna.
2. Individual traders spent $18 billion buying put option protection last week, a record, according to Goepfert at Sundial. They're also holding a record of $46 billion worth of index futures net short.
To contrarians, all that may well suggest that the negative news is already priced into the market.
3. Stovall at CFRA points out that in the June drawdown, S&P 1500 groups fell below the 50- and 200-day MA, which marked a bottom.
It may happen again this time. The only question is whether the rally will have legs or get sold into.
4. Then it's upside/downside ratio. "On a 20-day basis, it is above 60%, which is usually the start of the capitulation threshold," said Krinsky at BTIG.
It's transactional that bearish sentiment and positioning much of this year, and that's lack of true capitulation. As the seasonals become a tailwind in mid-October, a bounce shouldn't be too far from now, according to Krinsky.
5. The VIX has been relatively subdued throughout the September equity drawdown, as all things considered.
"The true panic level for the index is between 33-36, and the VIX has just hit once this year," said Colas at DataTrek. While looking back to last Friday, the VIX saw an intraday high of 32.3 and closed around 30, with put buying volume hitting the highest level in history.
"As much as the news is not good, it has not yet been surprisingly bad enough to push the VIX past 30 and keep it there for several straight days," Colas wrote. "That is the signal we want to see before thinking there is a tradable low in place."
Note: The upside/downside ratio is a market breadth indicator that shows the link between the volumes of advancing and declining stocks on an exchange.
Source: Bloomberg
Disclaimer: Investing involves risk and the potential to lose principal. Past performance does not guarantee future results. This is for information and illustrative purposes only. It should not be relied on as advice or recommendation.
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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