Unprecedented Times for the Stock Market
Where are potential levels of maintain for the S&P 500 index? S&P’s Mark Arbeter has some ideas
By Mark Arbeter From Standard & Poor’s Equity Research
From a Standard & Poor’s Equity Research report released Nov. 20
The massive rally and key overthrowing on Nov. 13 seems take pleasure in a distant memory as the greater indexes have once again broken to the downside. The selling remains heavy, the buying almost nonexistent, and until the supply/make inquiry equation changes, it is simple economics: lower prices.
The indulge in banter late latest week unfortunately turned into a one-day astonishment as we simply did not master any a great quantity needed price follow end. At smallest the rallies off the October 10 and October 27 lows took the S&P 500 up to just above the 1000 level. This time, we only got as high as 911 without ceasing a closing basis and then quickly rolled over to unused bear market lows. On Wednesday, the index broke the precursory closing low of 849 posted on October 27, and it appears that the market has entered yet another downward spiry.
With the breakdown, everyone is asking where the nearest “potential” take the part of is for the “500.” At this point, it is almost a moot interrogation. We will give some possible levels of price support, but at this end, our singly say in reply is, “The emporium leave grounds when it is ready to bottom”. Almost everything we look at from a technical perspective suggests we should be rallying, but that obviously is not happening. The final arbiter and only thing technically that is working is price and the abruptly, intermediate, and long-term trends remain bearish. We attempt to get out in front of the curve, using sentiment and place of traffic internal data as leading indicators for future price action. Sometimes this is very fruitful, and other times, it is just simply best to wait for price to trace out a bullish reversal formation and long-term moving average crossover systems to accord. long-term pervert with money signals.
The first melodrama of potential support for the S&P 500 is the October 9, 2002 closing low of 776.76. I never thought we would revisit this demolish, but here we are, testing this critical long-term support level. We should get a counter trend rally off this major long-term spare, in our view, and will have to see if we finally get some price come from one side and demand from institutions. Absent a stand at the 2002 bottom, we could see a measured move to 692 based on the width of the recent price consolidation which was 156 points.
The Nasdaq started to break down on Monday and there was no doubt about the downfall after Wednesday’s washout. The index is at this moment back into the price reversal follow from back in 2002 and 2003 with the consort of potential chart support that starts up near 1500 and runs down to the October 9, 2002 bear market low of 1114. Based without interruption the width of the newly come consolidation, we could see a measured move all the resolved mode of action down to the 1168 level.
The selling affliction on the Nasdaq has been ungodly of late, pressing people index internals to more of the most lopsided levels of all time. While volume for the period of Wednesday’s confirmed breakdown was about average, the supply/demand figures were absolutely abysmal. Nasdaq declining volume was 44 times greater than advancing volume, exceeding the level of October 19, 1987, and the greatest for our dataset back to January 1978. Supply does not have to be great to send prices lower if in that place is virtually not one demand. Any asset has an intrinsic value, an economic price, a fundamental value, moreover in some periods these don’t matter. Currently, assets are only worth that which people are willing to be a good investment, and yesterday, there weren’t many buyers.
One very good signify from Wednesday’s trading day was the spike in CBOE put/term (p/c) ratios. The total p/c ratio closed at 1.41, very close to the new highs of 1.51 on October 6 and 1.47 on September 15. Daily levels superior to 1.40 consider been fairly rare historically, and appear an extreme level of fear in the options market. The equity-only p/c ratio soared to 1.16 put on Wednesday, almost reaching the most recent high of 1.18 forward September 15. This has pushed the 10-day equity-only p/c ratio to 0.93, the second highest level since 2002, and only exceeded by the March 17 print of 1.00. Extremely high levels of p/c ratios indicate high levels of fear in the options market, and crowd ages, be delivered of represented time periods near major market lows. However, little from the sentiment side has been working lately, so buyer beware.
Another market level we at no time opinion we would be talking about is a 3% yield on the 10-year Treasury. Unfortunately, lower Treasury yields are a function of appear gloomy stock prices as investors be permanent to head notwithstanding clothe. Back in June 2003, the 10-year Treasury yield fell to 3.1%, and today, we hit that yield on an intraday lowest part. These are the lowest yields with regard to the 10-year going back to at least 1962. But, aren’t lower rates good for the management and pledge rates? Of course, exclude during a credit turning point at the time spreads instead of mortgages and corporate rates dwell way in the heavenly heights risk-free rates. It seems pretty simple: If you want to help the U.S. economy and its many strapped consumers, lower mortgage rates, allowing many individuals to refinance their homes and cut their primary monthly fee by a scarcely any bucks. This would improve individuals’ income statements, make housing more affordable, and maybe help us start to get out of the current situation.
Crude oil prices bloody to $50/barrel today, the lowest since the endure major dregs in January 2007. A fracture of the $50 level would open the door to the next piece of chart assistance from the pivot low from December 2004 of $40/barrel. Prices have fallen unbecoming the key bull market trendline that goes back to 1998, and if they drop much below the prior low from January 2007, it brings into demure trial whether the long-term secular bullish trend for crude oil is over. But, aren’t take down oil prices good according to the economy and the pockets of individuals and corporations? This is a plenteous easier question than the one in the prior paragraph. Absolutely yes!
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