Stocktake: Stocks may have further to fall

Big relief rallies may not be a sign the worst is over, but are there indicators that may help determine if a market bottom is near?

Traders often look for signs of capitulation. While markets became technically oversold recently, most indicators suggest little evidence of capitulation.

At last week’s lows, a quarter of S&P 500 stocks traded above their 50-day average – low, although major bottoms are associated with even lower readings.

Retail investor sentiment, as measured by the weekly American Association of Individual Investors polls, hit extremely low levels just prior to Russia’s invasion. Oddly, bearishness has actually decreased since then, suggesting ordinary investors are relatively fearful but not spooked.

Stocktake: Investors grapple with stagflation and nuclear risk

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Stocktake: Investors underestimated threat posed by Putin

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Stocktake: Stocks are in a ‘stealth bear market’

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Stocktake: Russian stocks cheap for a reason

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Difficult

Bank of America (BofA) notes its Bull & Bear Indicator fell last week to 3.4 but remains above the 2.0 level that triggers a contrarian buy alert. Similarly, BofA noted last week that, in dollar terms, 42 per cent of global equity indices were below their 50- and 200-day moving averages. But a buy signal is only triggered when more than 80 per cent of indices trade below their aforementioned moving averages.

Markets have endured a difficult 2022, but the usual indicators of a market bottom aren’t flashing right now. Things may well get worse before they get better.