If it feels to Wall Street investors that a period of seismic volatility has gripped markets this month, they aren’t alone.
Prominent market technician Ralph Acampora says he’s never experienced such a stretch of confusion in his more than 50-year career in financial markets.
“I’ve never seen such a confluence of confusion, between Brexit, the North Koreans, and tariffs and Trumps tweet,” Acampora told MarketWatch in a Friday interview.
That confusion has perhaps played out in a gut-wrenching climate for stocks that saw the Dow Jones Industrial Average
post swings of at least 1% on three consecutive sessions to start the week, headlined by an 800-point plunge on Wednesday.
A pioneer in the field of price chart based trading, Acampora says he has mostly advised clients to remain on the sidelines until the dust settles. He says the recent June 3 nadir for stocks is his technical floor, which could lead to deepening losses if the market fails to hold above those levels. Market technicians often view recent lows or highs as levels of buying support or selling resistance that if breached translate into a bullish or bearish investment phase.
“There are so many things and Europe is falling apart, so I’ve been telling everybody the June 3 low is the technical floor,” he said.
On June 3, the Dow put in a low of 24,819.78 (see chart below):
Meanwhile, the S&P 500 index
sank to 2,744.45 and the Nasdaq Composite Index
put in a low of 7,333.02 on the same date.
Acampora said that the small-capitalization oriented Russell 2000 index
on Thursday failed to hold above a trading low, finishing at 1,461.65, and the analyst says that the main indexes could be facing serious problems if they aren’t able to hold their ground.
“If the leading averages were to break down below (their June 3 low), I think we are headed 20% or 25% lower on the market, Acampora said.
“I say take out the June 3 low and then you are talking about a bear market,” he said, referring to the commonly accepted definition of a decline of at least 20% from a recent peak.
Acampora says a number of exogenous factors are buffeting investor psychology, which include the threat of Britain’s exit from the European Union, which is being advocated by new Prime Minister Boris Johnson, violent protests in Hong Kong, and the conflict between the U.S. and China on trade and the U.S. and Iran on nuclear weapons.
“Any one of those events could be very very serious,” for markets, he said.
Other downbeat signs are forming in markets as well. MarketWatch’s Tomi Kilgore on Thursday wrote that the Dow Jones Transportation Average
is on the verge of triggering a bearish signal if the widely watched gauge of airline and train-transport stocks falls 0.3% finishing below its May 31 closing low of 9,738.03. A dip beneath that level for followers of Dow Theory has remained a relevant indicator when it coincides with a similar move for the Dow industrials.
This week’s trade has been headlined by a so-called yield-curve inversion, where the yield of shorter-dated debt rises above its longer-term counterpart. On Wednesday, the yield 10-year Treasury note rate
briefly fell below the 2-year Treasury note
a condition that has often been an accurate recession indicator.
The degree to which investors have piled into the perceived safety of government debt has driven yields across the globe into ultra-low and negative levels, a dynamic that has also helped to keep U.S. government bond yields pinned lower. Some $15 trillion in government debt now carries a yield of less than 0%, another unusual condition in markets that has helped to drive investors into risky assets including stocks for lack of better-yielding assets. The average dividend yield on S&P 500 index stocks is around 2.0% currently.
“If anyone has an answer to this confusion they are joking themselves,” Acampora said.