A bear market for the S&P 500? The stage certainly looks set for one, as benchmark equity indices rebounded on Friday, posting weekly declines after a choppy session.
Prominent market technician Ralph Acampora told MarketWatch that stocks may still be looking for “another 10% to 15% down” as an extended period of elevated valuations is unleashed.
“I think there is a lot of confusion,” Acampora, a pioneer in the field of chart-based trading, told MarketWatch in an interview Friday afternoon. He speculated that the capitulation point for most investors had not yet been reached in stocks, based on his analysis.
“However, I think it could come in the next few months,” he said. The market technician said that he wanted to see a more pronounced move in the Cboe VIX volatility index,
aka VIX, with, perhaps, a one-day jump of around 50% seen as a significant indicator, in his opinion.
The VIX itself, which uses S&P 500 options to gauge traders’ expectations of volatility over the next 30-day period, stood around 30 on Friday. The index tends to rise as stocks fall and is therefore often seen as a guide to the level of investor fear. Its historical average ranges between 19 and 20 and has risen 10% so far this week and 84% so far this year.
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Stocks, meanwhile, have been convulsing lower.
Friday’s drop comes after indices opened higher on the session and after the Dow Jones Industrial Average DJIA,
and the S&P 500 posted their lowest closes since March 2021 on Thursday, according to Dow Jones Market Data.
Acampora sees the current environment, with the Fed raising rates in the face of rising inflation, as leading to the end of stocks’ long-term bull run, which had been marked by retail investors flocking to popular tech and memes. . related trades.
“I think the Robinhoods are going to get their heads,” Acampora said.
“And that will be a good lesson for them about investing,” he said, referring to trading platform Robinhood Markets Inc. HOOD,
popular with a younger set of retail investors.
In fact, the S&P 500 has been on the brink of a decline into bear market territory, with a close below 3,837.25 marking the 20% retracement from the benchmark’s recent high, which would meet the criteria. widely accepted for a bear market.
Meanwhile, the Dow Jones was down 16% from its final record high on Jan. 4, and the Nasdaq COMP Composite Index,
it was already in bear market territory and extended its decline.
It’s not all doom and gloom for Acampora, he says that after the markets are finally “washed out”, and the remaining bulls throw in their towels, he anticipates a rally to follow.
“It’s not the end of the world,” he said.
One factor giving the analyst pause at his moment is the growing number of bears, which he says could be counter-indicative, suggesting the possibility of an earlier bullish breakout for stocks.
“Everyone is negative and I don’t like being part of the crowd,” he said. “But sometimes the crowds are right.”
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Many chartists affectionately refer to Acampora as the “godfather” of technical analysis.