Are we anywhere near a bottom? The market is seriously oversold. We know what the market needs in order to steady itself: 1) rates stabilizing, 2) inflation stabilizing (the next CPI is out October 13), and 3) earnings commentary that does not force wholesale revision of earnings estimates (earnings season begins in about three weeks). Lowry, the nation’s oldest technical analysis service, notes the dramatic expansion of 52-week lows on the NYSE (nearly 1,000 on Friday) and Nasdaq, which means investors are not snapping up any bargains yet. Breadth is also poor, as is the percentage of stocks above their 50-day and 200-day moving averages. Most discouraging is the lack of buying interest: the market simply cannot put together a few strings of up days. “It is important to understand that no matter how low price moves or how panicked investors become, it takes robust Demand, not just exhaustion of Supply, to cause prices to rise substantially. Unfortunately, there are no signs of that returning Demand at this time,” Lowry said in a note to clients over the weekend. Still, we went right up against the June lows on Friday, that at least is a double bottom. Is that reason to pick at the market? Jonathan Krinsky, technical strategist at BTIG, isn’t so sure. “Given the acceleration higher in the dollar, global yields, and the breakdowns across global FX, it’s hard to not have concerns about longer-term implications,” he said in a note to clients over the weekend. Like everyone, Krinsky is waiting to get out of September. “Several of those [indicators like dollar and global yields] are at or near levels that suggest a bounce should be forming soon, especially as the seasonals become a tailwind in mid-October. As far as a level, while there will be some talk of a double bottom at the June lows, an undercut that gets closer to the 200-Week Moving Average (3,585) makes sense to us.” Still, the most important mover of the markets (interest rates) are not giving any indication that they are going anywhere but up, or at best staying at current high levels. “The rising cost of capital has been relentless, with high yield corporates now yielding 540 bps more than last fall, as financial conditions continue to tighten,” director of global macro Jurrien Timmer at Fidelity said in a note to clients over the weekend. “The global liquidity tide is rapidly going back out to sea, taking risk assets with it,” he said. So where does that leave the markets? “Based on the combined inputs of the nominal 2-year and real 10-year, my best guess is that the S & P 500 is worth 14.3x fwd EPS. At the current estimate of $236, that’s 3378,” Timmer says. With the S & P closing at 3,693 Friday, that’s about 8% lower. The spread of estimates for the S & P in the next few months recently have been between roughly 3,000 and 3,600, so Timmer’s estimate is within the ballpark of his fellow strategists. The big moves in the dollar are just killing emerging market funds. The largest, iShares Core Emerging Market ETF (IEMG), hit a better than 2-year low on Friday. “The dollar’s move in the last few days has been extreme,” Marc Chandler, chief market strategist at Bannockburn Global Forex, noted over the weekend. And as the Dollar Index has risen roughly 4% this month alone, the emerging market ETFs have dropped too.
The signs traders are watching to signal the stock market has bottomed