Morgan Stanley Smart Index breaks a critical GANN Line — this is not good. pic.twitter.com/iuKewP8ZSc
— Alastair Williamson (@StockBoardAsset) October 23, 2018
“The reason why the broader index has so far avoided a similar fate is because Apple, whose $1 trillion market value makes it by far the most heavily weighted stock within the S&P 500, has fallen only 4.6% from its October 3 record high. That has helped the S&P 500 itself stay out of correction territory.”
“More concerning, and a testament to the tech-heavy leadership of the market concentrated amid just a handful of stocks, is that while the broader S&P 500 index has yet to enter a correction, more than three quarters of all S&P stocks – or 353 – have already fallen more than 10% from their highs. Worse, of those, more than half 179 have already fallen by 20% or more from their highs, entering a bear market.”
Andrew Adams lived through Brexit. He made it through the presidential election, and China’s devaluation, when violent selloffs in U.S. equities gave way to heroic recoveries. Going by the charts, he says, this episode looks the same. But going by his nerves it’s different.
“There’s less conviction that something is there to bail us out,” said Adams, a strategist for Raymond James & Associates in St. Petersburg, Florida. “This time, no one’s really expecting much out of the markets.”
While Adams is a long way from throwing in the towel, he’s not imagining things when it comes to subtle shifts in market behavior. One is the persistence of losses. Stocks in the S&P 500 have dropped in 18 of the 23 days since peaking in September, roughly twice the frequency of the last three corrections.
It’s been such a grind that one of the longest-term technical indicators, the 200-day moving average on the S&P 500, just fell for the first time in 2 1/2 years.
Instead of the pattern traders are used to — one or two nerve-shattering plunges followed by a V-shaped surge — the selling that began three weeks ago has been slower and steadier. One moderately bad day follows another, with fewer breaks. The S&P 500 has declined in 12 of the last 14 days, something that hasn’t happened since March 2009.
Nobody’s saying the market can’t bounce back — after Tuesday’s midday rebound, many saw signs of the old pattern re-emerging — but it’s hard to deny the ground has shifted. Gone are days when the Federal Reserve was a reliable backstop for liquidity. Instead, the central bank has raised interest rates eight times and shows little inclination to stop.
Selloffs in 2011, 2014 and 2015 all came with Fed-fomented anxiety, though back then policy makers weren’t doing much, said Bruce Bittles, chief investment strategist at RW Baird. “In the present example, rates are actually going up. That’s certainly a different environment than what we’ve experienced in the past years.”
Higher yields, concern over slowing growth and signs of inflation have combined to send the S&P 500 down 6.5 percent from a record high in September. That’s rough, but not as bad as earlier downdrafts. In February, a blow-up in volatility sent stocks into the fastest correction since the 1950s. In January 2016, the S&P 500 lost 11 percent in 15 trading sessions. It swooned 11 percent in six sessions after China devalued the yuan in 2015.
Which isn’t to say the latest episode has been easy. The 14-day relative strength index recently fell to 17.7, an extremely oversold reading that has only been seen one other time since 2012.
To Michael O’Rourke, JonesTrading’s chief market strategist, these travails seem more significant than past ones because the length of the decline suggests nothing is emerging to arrest it.
“Overall, the Shanghai Composite has lost 27% of its value since hitting a peak on Jan. 24, while the small-capitalization focused Shenzhen has declined by 34% since its late-January apex.”