After such a bad week for stocks, the question is whether the worst is over. In the view of analysts of more technical corners of the markets, the answer is: probably not yet.
The S&P 500 had its worst week since the financial crisis, down nearly 12%. But some think it might have to drop by more than 20% from its peak before it will find real support from bargain hunters.
This pessimism isn’t born of expectations that the global economy will crash because of the response to the coronavirus. It has more to do with the extreme valuations and the aggressive ways some fast moving investors had placed their bets coming into this month’s tumult. Furious buying and selling last week was exaggerated by automated traders—action that mom-and-pop investors might now follow.
So far, many investors sitting on big gains made over the previous months haven’t completely given up and sold those positions. Doing so is known as “capitulation” and often seen as a sign of a market bottom.
“There is not capitulation yet, not at all,” says David Bieber, a Citigroup Inc. quantitative analyst who studies the size and volume of outstanding bets across all kinds of derivatives markets.
He notes that a lot of the fall in prices last week was driven by activity in futures and derivatives markets alongside some selling of exchange-traded funds, more than by outright selling of stocks and bonds.
At the start of the week, as they started to digest the spread of the coronavirus to Europe, hedge funds were using derivatives such as stock futures to cut back their bets on stocks. By Wednesday and Thursday, computerized, trend-following fund managers, known as CTAs (commodity trade advisers), and other systematic investors were jumping on the bandwagon, reinforcing the moves.
Some think this type of selling has more room to run. For instance, investors came into the weekend still sitting on more bets in the futures market for stocks to rise than to fall. Mr. Bieber says for those bets to be fully reversed, the S&P 500 might have to fall to a level of 2600, which would be more than 23% down from its peak 10 days ago.
“The futures market has got less long [or positive on] equities but it’s still not short and that’s the problem,” he says.
Such a fall sounds dramatic, but markets had reached quite extreme levels ahead of this week’s declines. Some hedge funds had built unusually large bets on equities performing well over the past few months before this week, according to analysts. Momentum-chasing CTAs, which had about $320 billion in assets at the end of 2019, according to BarclayHedge, and other systematic funds followed them into extreme bets on stocks and other assets through futures markets.
“Momentum traders who always act as an amplification on markets have likely been at the core of the [selling] over the past week,” says Nikolaos Panigirtzoglou, global markets strategist at JPMorgan Chase & Co.
He says even if those funds are approaching the limits of their selling, markets could take another leg down if individual investors head for the exits. Just less than $20 billion of funds have flowed out of equity ETFs in the week to Friday morning, according to Barclays, which is less than one-third of what had gone in this year up to last week.
Analysts track what investments CTAs, hedge funds and others are making through a mixture of publicly reported futures market data and their own bank’s trading desk activity.
Mr. Panigirtzoglou says CTAs have room for a modest further cut to positions. Analysts at Deutsche Bank AG say they could still sell a lot more to approach the kind of short positions they reached in previous market routs in 2011, 2016 and 2018.
Masanari Takada, a macro and quantitative strategist at Nomura Holdings Inc., thinks CTAs have only cut up to half their equity positions. “Systemic selling pressure is increasing,” he said.
These technical forces are only one element driving markets and traditional investors could still jump back in if there is an unexpected improvement in the coronavirus situation or governments and central banks act decisively to cushion the economic impact
Candice Bangsund, portfolio manager, global asset allocation at Montreal-based Fiera Capital, still thinks global economic recovery will come with the help of central banks. But she isn’t buying the dip yet.
“We’re not yet at the point of excess bearishness where it’s a good time to step in,” she says.
A busy political calendar, including Super Tuesday primaries on March 3, is also a wild card. Some investors see the leading candidate, Bernie Sanders, as a potential threat to markets because his policies are likely to be more in favor of higher taxes and spending.
“People are unwilling to buy the dip before Tuesday because if Bernie Sanders wins by a landslide, there will be another recalibration of growth outlooks,” said Mr. Panigirtzoglou.
—Caitlin Ostroff and Avantika Chilkoti contributed to this article
Write to Paul J. Davies at paul.davies@wsj.com and Julie Steinberg at julie.steinberg@wsj.com
Copyright ©2019 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
"Market" - Google News
March 02, 2020 at 12:31AM
https://ift.tt/39bwPCE
Market Technicians Think the Selloff Isn’t Over - Wall Street Journal
"Market" - Google News
https://ift.tt/2Yge9gs
Shoes Man Tutorial
Pos News Update
Meme Update
Korean Entertainment News
Japan News Update
/cloudfront-us-east-1.images.arcpublishing.com/bostonglobe/VNG7YMZTRWJ5WBFTJ5NVETPCQI.jpg)
No comments:
Post a Comment