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Dec. 27, 2018, 9:31 a.m. EST

Here’s why the stock market’s big bounce doesn’t mean investors will outrun the bear

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By Barbara Kollmeyer, MarketWatch


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Miles to go…

Market whiplash is something to behold these days.

That 1,000-point rally the market handed the Dow on Wednesday is threatening to unravel in a market lacking traders and some hard news. But before we go any further, the denizens of financial Twitter want everyone to stop obsessing over the point thing, which they note is misleading when it comes to tracking trends:

The prevailing opinion right now seems to be that the 5% gain for the S&P 500 and equally biggish gains for the rest, amounts to nothing more than a sucker's rally. And that kind of market can work very well for experienced, quick-as-a-whip traders, but less great for retail investors:

More numbers. The S&P’s jump was the 18th biggest single-day rise for the index since 1970, notes Russ Mould, AJ Bell’s investment director. But eight of those “came during the bear market of 2007-2009 and three more during the market downturn of 2000-2003, to suggest there is still a risk that this year’s Boxing Day bonanza could be no more than a wicked bear trap set to lure investors into more trouble,” he says.

Our call of the day says investors need to be a lot more patient than a kid at Christmastime if they want to see the bottom come in for stocks and an uptrend resume. It comes from Dan Wantrobski, director of research at Janney, who tells clients he’s expecting declines in excess of 20% from the highs before we get a “meaningful bottom”

He bases this on a chart that overlays the S&P’s performance from 1943 to 1946, which shows how the market reacted ahead of a decadeslong rise in bond yields, to that of 2015 to present. If the latter period keeps tracking the former, investors may see a low established, then “volatility in the form of a choppy, multi-month base-building process that can take several months before resolving higher again.”


Janney/Bloomberg

Wantrobski also noted that “deeply oversold conditions” are in place for 80% of NYSE stocks right now and while capitulation is getting closer, a “series” of 90% down days are needed to “flush out the weaker hands and tee up attractive valuations for new buyers.”

“Oversold conditions promise at least a trading rally ahead as we approach the New Year — but for now, stay buckled as we likely have some more miles to travel in this correction cycle,” he says, noting that they are sticking to utilities, staples, health care, REITs and gold, silver and the dollar.

The market

It’s a sea of red for the Dow /zigman2/quotes/210598065/realtime DJIA +0.67% , S&P 500 /zigman2/quotes/210599714/realtime SPX +0.62%  and Nasdaq /zigman2/quotes/210598365/realtime COMP +0.95% in early action.

The dollar /zigman2/quotes/210598269/delayed DXY -0.03% and crude are also sliding, with gold higher.

Check out Market Snapshot for more coverage

European stocks /zigman2/quotes/210599654/delayed XX:SXXP -0.73%  are back from an extended holiday break and sagging. In Asia, the Nikkei /zigman2/quotes/210597971/delayed JP:NIK -0.43%  logged a 3.9% gain, but China stocks /zigman2/quotes/210598127/delayed CN:SHCOMP +0.26%  fell 0.6% as data showed a sharp fall in industrial production.

/zigman2/quotes/210598065/realtime
US : Dow Jones Global
27,384.75
+183.23 +0.67%
Volume: 287.00M
Aug. 6, 2020 3:59p
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/zigman2/quotes/210599714/realtime
US : S&P US
3,348.38
+20.61 +0.62%
Volume: 2.16B
Aug. 6, 2020 3:59p
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/zigman2/quotes/210598365/realtime
US : U.S.: Nasdaq
11,103.21
+104.81 +0.95%
Volume: 3.57M
Aug. 6, 2020 3:59p
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/zigman2/quotes/210598269/delayed
US : U.S.: ICE Futures U.S.
92.84
-0.03 -0.03%
Volume: 0.00
Aug. 6, 2020 3:49p
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/zigman2/quotes/210599654/delayed
XX : STOXX
362.49
-2.67 -0.73%
Volume: 0.00
Aug. 6, 2020 5:50p
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/zigman2/quotes/210597971/delayed
JP : Nikkei
22,418.15
-96.70 -0.43%
Volume: 0.00
Aug. 6, 2020 3:15p
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/zigman2/quotes/210598127/delayed
CN : China: Shanghai
3,386.46
+8.90 +0.26%
Volume: 41.53B
Aug. 6, 2020 3:01p
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