A bear market for the S&P 500? The stage certainly appears to be set for one, as equity benchmarks added to ugly weekly declines on Friday.
Prominent market technician Ralph Acampora told MarketWatch that stocks may still be looking at “another 10% or 15% to come on the downside,” as a protracted period of lofty valuations comes unbound.
“I think there’s so much confusion out there,” Acampora, a pioneer in the field of chart-based trading, told MarketWatch, in an interview on Friday afternoon. He speculated that the point of capitulation for most investors still hadn’t been achieved in stocks, based on his analysis.
“I think it could come in the next couple of months, though,” he said. The market technician said he wanted to see a more pronounced move in the Cboe Volatility Index
aka VIX, with, perhaps, a one-day jump of around 50% seen as a meaningfully indicator, in his view.
The VIX itself, which uses S&P 500 options to measure trader expectations for volatility over the coming 30-day period, stood at around 32 on Friday. The index tends to rise as stocks fall and is often therefore referred to as a guide to the level of investor fear. Its historical average ranges between 19 and 20 and it was up 10% so far this week and 84% in the year to date.
Stocks, meanwhile, have been convulsing lower.
Friday’s slump comes after the indexes opened higher on the session and after the Dow Jones Industrial Average
and S&P 500 booked their lowest closes since March 2021 on Thursday, according to Dow Jones Market Data.
Acampora sees the current environment, with the Federal Reserve raising rates in the face of a surge in inflation, as leading to the end of the long-term bullish phase of stocks, with retail investors crowding into popular technology and meme-related trades.
“I think the Robinhoods, they’re going to get their heads handed to them,” said Acampora.
“And that will be a good lesson to them in investing,” he said, referring to trading platform Robinhood Markets Inc.
popular among a younger set of retail investors.
Indeed, the S&P 500 has been on the precipice of a decline into bear-market territory, with a close below 3,837.25 marking the 20% pullback from the benchmark’s recent high, which would meet the widely accepted criteria for a bear market.
The Dow, meanwhile, was 16.5% below its Jan. 4 record finish, and the Nasdaq Composite Index
was already in bear-market territory and extended its tumble.
It isn’t all gloom for Acampora, he says that after markets eventually “wash out,” and the remaining bulls throw in their towels, he is anticipating that a rebound will take hold.
“It’s not the end of the world,” he said.
One factor that gives the analyst pause in his timing is the growing number of bears, which he says could be contraindicative, suggesting the possibility of a burst higher sooner for stocks.
“Everybody’s negative and I don’t like being a part of the crowd,” he said. “But sometimes the crowds are right.”
Many chartists refer to Acampora affectionately as the “godfather” of technical analysis.