Reuters Insider - S&P could sink to December low - Gabriel

Federal

16/08/2019 05:23

Click the following link to watch video: https://share.insider.thomsonreuters.com/link?entryId=0_vuf4zkf6&referenceId=tag:reuters.com,2019:newsml_OVASC4E4R_930&pageId=ReutersNews
Source: Reuters Insider

Description: The S&P 500 could sink to test its low hit last December, Thomson
Reuters Stock Buzz analyst Terence Gabriel tells Reuters' Fred Katayama. He
notes trading volume is rising and trader mentality has become pessimistic.
Short Link: https://tmsnrt.rs/2Z5yd3G

Video Transcript:

Choppy session on Wall Street Thursday. The major indexes, once again,
flipping back into minus territory. Right now the S&P 500 down around 0.2%.
Well, let’s find out what’s behind this volatility. We’re
joined by Terence Gabriel. He is Stocks Buzz Analyst at Thomson Reuters.
Welcome again, Terence. So why the talk of war today?

Well, it’s actually been a rough August. We had such a quiet period
throughout most of June and July. And since August kicked off, we’ve seen
a number of greater than 1% days on the S&P 500 either up or down. So
we’re seeing this volatility increase. A lot going on out there with
China and trade, the Federal Reserve, with the bond market and the yield curve
inversion that we saw this week. So there are a lot of issues out there which
definitely have the market on edge here.

You’re saying the increase in volatility. What does that portend? Are we
coming out to some big shakeout here? Is there an upward bias or a downward
bias at this point?

Well generally, volatility tends to transition from low volatility to high
volatility, and then high volatility back to more contained volatility. The
move up that we’ve seen here, however, may still be in its early stages.
When we look at a number of measures of volatility such as the CBOE VIX index
which is a measure of implied volatility, it’s been rising. It’s
pushed up to eight-month highs. But it looks as if there is room for these
measures to move higher as the market moves lower.

And summer, August, tends to be a slow period with a downward bias
historically, but we’re seeing some volume on the rise of late. What does
that mean?

Yeah, that’s quite interesting actually. You would think August a quiet
month. Actually, it’s been a fairly difficult month looking back for the
last decade or so, certainly. We had a number of instances where we had the US
debt downgrade in 2011. We had an issue related to China in the summer of
2015. And now again similar involved issue with China perhaps. But we saw the
highest volume of the year, actually, in the first week of August. So it
suddenly seems to be picking up and it does suggest that perhaps again the
market has more work to do on the downside. The selling pressure is coming in
and it may not be fully washed out yet. 

You talk to traders all the time. What are you sensing from your conversations
in terms of their attitudes towards the market?

Yes. I think—hearing some sort of interesting changes perhaps in the way
traders are sort of viewing this market. For a long time it was buy the dips,
buy the dips, buy the dips. But traders are remarking that they’re
starting to feel that that may be transitioning. That, for the first time in
recent memory, maybe a sell-the-rallies mentality is really starting to take
hold. And that may be contributing to the volatility. When the market does
find a low as we’ve been seeing over the last couple of weeks,
there’s this very sharp reaction higher. It’s met with a greater
sharp reaction that the downside perhaps. So it does seem as if there’s a
struggle which is now taking place between bulls and bears, between the
buy-the-dip and sell-the-rally camps. 

And given that, Terence, where do you see the markets going in say two, three
months from now? The S&P 500, we have the 200-day moving average at around
2,796. We hit the 200-day in March and June and quickly bounced back. Do you
see the S&P 500 hitting that level, and where does it go after that?

The S&P 500’s 200-day moving average is just below 2,800, so not far from
where we are now. Again, it should be a level that traders are focused on. It
could potentially offer support and the potential for a low. The difficulty
here is overall we look at the charts, there are some larger patterns that are
potentially at work here that suggest that there is greater downside risk.
Now, we wouldn’t expect to have a straight line down. So levels such as
the 200-day moving average could certainly offer support and we could see a
rally develop from there. We’d have to sort of assess that rally to see
whether or not we thought it could be more sustained. But that being said,
some of these larger patterns that are at work on the charts do suggest that
you could see much greater risk on the downside. For example, the December
lows could well be at risk in this decline over a period of time before the
market might actually be sufficiently washed out and oversold on a longer term
basis to establish a more enduring low.

Okay. And on that low point, the downward point, we got to hold it there. But
thanks a lot, Terence, for sharing your views on this crazy topsy-turvy
market. Our thanks to Terence Gabriel of Thomson Reuters Stocks Buzz. I’m
Fred Katayama. This is Reuters