A bear market for the S&P 500? The phase certainly seems to be set for one, as the equity benchmark was added to the ugly weekly fall on Friday.
Leading market technician Ralph Acampora told MarketWatch that stocks may still be “looking at another 10% or 15% decline,” as long as the high valuation period is not limited.
“I think there’s a lot of confusion,” Acampora, a pioneer in chart-based trading, told MarketWatch in an interview on Friday afternoon. He speculated that surrender points for most investors had not yet been earned in stocks, based on his analysis.
“I think it could come in the next few months,” he said. The market technician says he wants to see more clear action on the Cboe Volatility Index VIX,
Aka VIX, probably, with a jump of about 50% a day, is seen as a meaningful indicator in his eyes.
The VIX itself, which uses the S&P 500 options to measure traders’ expectations for volatility over the next 30-day period, stood at around 32 on Friday. The index rises with the fall of the stock and is therefore often cited as a guide to the level of fear of investors. Its historical average ranges between 19 and 20 and it has risen 10% so far this week and 84% year over year.
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The stock, meanwhile, has been less volatile.
Indices opened higher during Friday’s recession session and followed by the Dow Jones Industrial Average DJIA.
And the S&P 500 booked their lowest close since Thursday, March 2021, according to Dow Jones market data.
Acampora looks at the current environment, raising the Federal Reserve rate in the face of rising inflation, ending a long-term bullish period in stocks, as retail investors crowd into popular technology and meme-related trades.
“I think Robinhoods, they’ll put their heads in their hands,” Acampora said.
“And it will be a good lesson for them to invest,” he said, referring to trading platform Robinhood Markets Inc. HOOD.
Popular among young retail investors.
Indeed, the S&P 500 is on a downward trend in the beer-market region, marking a 20% pullback from the recent high of the benchmark below 3,837.25, which would meet widely accepted criteria for a bear market.
The Dow, meanwhile, is down 16.5% from its record finish on January 4 and the Nasdaq Composite Index comp.
Already the bear-market was in the area and its turmoil has spread.
This is not all sadness for Acampora, who says that after the markets have finally “washed out” and the remaining bulls have been thrown into their towels, he hopes there will be a comeback.
“It’s not the end of the world,” he said.
One reason the analyst is taking a break from his time is the growing number of bears, which he says could be the opposite, given the potential for higher explosions soon for stocks.
“Everyone is negative and I don’t like to be part of the crowd,” he said. “But sometimes the crowd is right.”
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Many chartists affectionately refer to Acampora as the “godfather” of technical analysis.