Here’s one reason the stock market is wasting big early leads: ‘We’ve gone from buying the dip to selling the rally,’ says analyst
Another day, another rally that turned very, very pear-shaped.
A flirt with a respectable comeback a day after entering corrective territory proved short-lived, with the Nasdaq Composite COMP,
marking another ugly reversal on Thursday, mimicking a similar retreat in intraday gains on Wednesday.
The move appeared to be a headache for some participants, as it seemed likely that the tech-laden Nasdaq Composite could finally finish higher, with momentum supporting the Dow Jones Industrial Average DJIA,
and the S&P 500 SPX,
landmarks and bargain hunters rush.
Read: The Nasdaq Composite just recorded its 66th correction since 1971. Here’s what history says is happening next to the stock market.
However, the advance could not hold and the market reversal was pronounced. The finish left the Nasdaq Composite, which was up more than 2.1% at its high on Thursday, with its biggest reversal from an intraday high since April 7, 2020, Dow Jones Market Data showed.
The Nasdaq Composite closed down around 1.3% on the session, teetering decidedly lower in the past hour of trading.
Frank Cappelleri, executive director and technical analyst at Instinet, told MarketWatch that there’s a simple reason why the market is crashing.
To verify:Opinion: A bullish sign? Nasdaq investor sentiment is worse now than it was in March 2020
“We went from buying the dip to selling the tear,” he explained, using market slang for a rally.
“Today was a microcosm of what happened,” he said, and he warned that many sectors of the market had still failed to reach the conditions that market technicians describe as oversold, meaning more sales could be in store.
“If we continue to get closes like this, it just signals to usage that the market is not ready to rise,” Cappelleri said.
See: At least 7 signs show how the stock market is collapsing
The Instinet analyst said investors should look for a pattern of higher highs and higher lows, in which we have been in a downtrend marked by lower lows and lower highs. In such an environment, Cappelleri said it makes sense to sell rallies until the color of the market changes.
The stock market has been under siege, at least in part, due to the prospect of multiple interest rate hikes from the Federal Reserve, which meets on Tuesday and Wednesday. Higher rates can act as a deterrent to investing in speculative segments of the market that rely heavily on borrowing, with investors discounting future cash flows. Inflation talk has also dampened the market and is a key reason the Fed is moving from easy money to policy tightening.
Buyers tried to turn to sectors that should perform better in the year ahead, such as financials and energy, but the rotation was uneven and marked by bouts of turbulence.
See: Stock market warning signal: Here’s what soaring bond yields say about S&P 500 returns over the next 6 months
A rapid rise in Treasury yields also accelerated turnover and helped to further stoke equity volatility. The 10-year Treasury TMUBMUSD10Y,
was generally quiet on Thursday, but expectations are for further increases in short-term and long-term debt.