Insights: Technical Appraisal of U. S. Equity Market
Looking Forward: Technical Appraisal and Expectations for the U.S. Equity MarketMarket capitulations are a resignation of all hope. As volatility spikes and the market experiences wild gyrations, investors sell what they can to try to achieve some sense of stability. Support and resistance levels mean little other than as talking points. Let's face it, if investors want out, they want out.
Here are a few guidelines to keep in mind as we work through the market's current unease.
1. Selling climaxes are followed by an eventual retest of the previous, recent low, or bottom.
2. It is often difficult to predict a level at which the market will find an eventual bottom. Generally, support and resistance levels are often found around either the 50-day and 200-day moving average. However, those levels have already been decisively taken out. The next levels of technical support are 2,600 and 2,553 respectively. These levels are tenuous and not fully reliable, much like the emerging market sell-off in late 2015, during which theoretical support levels were decisively taken out.
3. We expect that once a bottom is made, we would see apathy on the part of buyers. In other words, market participants will be slow to believe the market has established a bottom. We also expect this “crowd†to be wrong.
4. We expect the timing of a retest of the initial low would be several weeks out from establishing such that low. The market's internals, or breadth, will show improvement; this will be especially true of the leadership sectors.
5. We have used a number of very reliable tools in the past to get a view of how oversold the market is. For example, we rely on the percentage of stocks below their 50- and 200-day moving averages to get a sense of where the market is on a scale of extremes. Even when an extreme level has been reached, we often stay near these oversold levels for weeks and volatility remains high. This report highlights some of our preferred indicators and provides a context, through charts, of the state of the U.S. markets.
Vermilion Research delivers timely, actionable, and unique research inputs to professional investors. Our research strategists highlight securities which we believe are at major inflection points, based on our various proprietary technical indicators, and offer asymmetric risk/return profiles. We believe our research methodology, which is not limited by industry sector or market capitalization, enables us to deliver superior investment recommendations.
Our process begins by organizing all actively traded stocks into coherent sectors, then into logical industry groups. We then apply our proprietary relative strength tools to identify developing price trends. Once attractive trends are identified within a selected sectors or groups, we screen for individual stocks which we believe offer the best risk/reward profile. Vermilion offers U.S. and global equity market research products. Vermilion’s research team, which has received numerous awards and accolades, has a combined 70 year of experience in the analysis of investment securities.
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