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The new mantra for investors this week might be that good things come to those who wait.
Wall Street experts continued Monday to call for caution, predicting that the turbulence of the stock market is far from over. Still, many of them ended their comment on an optimistic note, suggesting that the bullish backdrop for equities remains intact.
Stephen Suttmeier, a technical research analyst at Bank of America's Merrill Lynch, said that there was an abundance of over-sold stocks and that bearish sentiment was on the rise but that the market was not sufficiently degraded to the point that the negative trend is turning into an indicator of contrarian buying.
"It may take longer and down tests to keep the market low," Suttmeier said in a note to customers.
The analyst observes a technical indicator: the CBOE 3-month volatility index / the CBOE volatility index.
VIX -1.92%
This ratio, which closed at 0.863 on October 11, is "the most feared sold" since its decline to 0.758 on February 5.
"Peaks lower than 1.0 on the VXV / VIX have suggested tactical surrender and coincided with big lows on the S & P 500, but these lows are sometimes retested," he said.
About 46% of the S & P 500's shares are above their 200-day moving average, the lowest since early 2016, while 12% of stocks reached their lowest level in 52 weeks last week.
"This deterioration is seen across all major US equity averages and suggests a bullish trend that is losing momentum or a more advanced stage from the beginning of 2016," he said.
For the moment, the S & P 500 is trading above its 12-month moving average, while its moving average convergence divergence (MACD), a momentum indicator illustrating the relationship between two moving averages of prices , remains a signal of purchase. But if the 12-month moving average of the S & P 500 falls below 2,747 and the monthly MACD goes into a sell signal, the risk for a bear market will increase, according to Suttmeier.
Another measure to watch for is the high-yield, option-adjusted spread, the premium required by investors in exchange for holding riskier debt than the investment grade.
"The big thing to watch for high yield bonds is 3.68 to 3.72 (2018 peaks). A break above this level would indicate an increase in credit market tensions and would likely confirm a break in the S & P 500 index before a larger downturn in the stock market, "said L & # 39; analyst.
The high-yield OAS traded at 3.44 last week.
The main assistance lines to watch for the S & P 500, where investors are comfortable buying into the market, range from 2,729 to 2,710, followed by 2,692 to 2,676.
But as bad as things may be, there are reasons to be optimistic.
"Many people are focusing on" selling in May and going away "but the best and much less known model of the market is" buy in October and stay, "said Suttmeier, who pointed out that from November to April stocks.
Returning to 1928, this six-month period was up 71% of the time for an average yield of 5.07%. This time, the situation could be even more optimistic given the traditional momentum of a mid-term election year, he added.
Tony Dwyer, chief market strategist at Canaccord Genuity, also predicted that the withdrawal may take some time to resolve.
"We find it unlikely that there is a bottom in V given the sharpness and magnitude of the correction," he wrote in a Monday note.
In fact, he went so far as to suggest that the market rebound to 3,200, which he had planned for the end of the year, could be delayed in 2019 depending on how long it takes for the market to bottom out. . However, he refrained from revising his outlook and reiterated his view that the current period of weakness is likely to be temporary.
"It is essential to remember that, even though a number of fundamental excuses could be used, this correction was born from 1) excessive optimism; 2) an extreme overbought condition in the medium term; and 3) historically low volatility – rather than a fairly large fundamental change suggesting a credit closure and, ultimately, a negative EPS, "he said.
Here is Dwyer's checklist of tactical indicators to watch for:
At the same time, David Kostin, chief US equity strategist at Goldman Sachs, reminded investors that a 5% cut was relatively common.
"Since 1928, the index has generally declined by 5% every 71 trading days. 69 trading days have passed between 5% draws before Thursday, "he said.
The good news, however, is that Goldman's strategists do not see any significant upside potential for bond yields and are expecting 10-year US Treasury yields.
TMUBMUSD10Y, + 0.03%
close the year at 3.1% against 3.161% currently.
Kostin has maintained the 2850 goal of its S & P 500 index at the end of the year, pointing out that the probability of a recession in the next three years is about 37%.
"The cumulative increase in EPS, combined with a slight rise in the S & P 500 index, reduced the forward foreign exchange multiple by 14% to 15.7 times, reducing the valuation risk for investors in shares, "he said.
One of the indicators that Kostin finds encouraging is the high return on equity, a popular indicator of corporate profitability, which reached 17.5% in the second quarter, one of the highest in the last 40 years. Excluding financial, the ROE reaches a record of 20.7%.
Nevertheless, the strategist expects companies to feel some pressure on their margins due to rising interest rates and recommends that investors focus on companies with strong balance sheets, such as TripAdvisor Inc.
TRIP, -0.79%
Under Armor Inc.
AU, + 0.26%
Chipotle Mexican Grill Inc.
CMG, -0.90%
Marathon Oil Corp.
MRO + 1.51%
and Amgen Inc.
AMGN, -0.92%
Shares resumed their march south after a reprieve Friday with the S & P 500
SPX, -0.59%
off 0.1%, the Nasdaq
COMP -0.88%
down 0.4% and the Dow Jones Industrial Average
DJIA, -0.35%
struggling to become green.
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