The stock market has been shaken this year, the S&P 500 down 10% since the start of the year when investors are concerned about the economic benefits of President Donald Trump’s prices.
These concerns were aggravated earlier this week when the S&P 500 and the Nasdaq 100 flashed a signal of “Cross of Death”, which was historically considered as a technical indicator of “Sale”.
But Adam Turnquist, chief technical strategist of LPL Financial, told BI this week that investors should not be too panified.
Indeed, historical yields after the signals of the death of death spent on the stock market were quite positive.
Turnquist criticized the figures and noted that since 1950, the front yields at 3, 6 and 12 months for the S&P 500 after a death -cross signal were positive.
LPL research
In addition, the three temporal horizons had a positive percentage rate of more than 50%, with a victory rate of 72% 12 months after the signal.
Turnquist always admits that the death cross can be a precise signal of the losses to come, citing a handful of examples.
“While the crossings of death indicate that the action of recent prices loses momentum and can serve as a sign of premonitory warning to develop a downward risk, as was the case in March 22, early December 18, December ’07 and October ‘, the name is not as worrying as it may seem,” said Turnquist.
Return after the drop in the waterfall
Turnquist has further analyzed by isolating the signals of the death of death which occurred during the drop in the previous “waterfall” on the stock market, similar to the historical sale seen earlier this month.
“When you have a death cross with a fairly serious withdrawal, you tend to get much better yields forward, which means that you have already evaluated a lot of damage,” said Turnquist.
Turnquist said that the death crossings that occur in the month following a 15% withdrawal from the S&P 500 resulted in an average yield at the front of 16% and a victory rate of 83%.
The S&P 500 saw a drop of 21% as tops during the recent sale, which – on the basis of the linear regression analysis of Turnquist – should precede a yield of 32% in the next 12 months.
Turnquist said it was “not necessarily our call”. But that suggests that the stock market could be ready for a big rebound depending on the historical action of death crosses.
Is the bottom in?
Turnquist thinks, based on a multitude of data points suggesting that stock market sellers are exhausted.
“We believe that there is enough technical evidence to suggest that we have had the capitulation point on the stock market markets,” said Turnquist, highlighting the negative feeling of investors and the occurrence conditions.
The question is, what will be the form of the background?
Could we see a “V-shaped recovery” similar to what happened in March 2020, or a more established background that could see the market resets its hollows?
Turnquist leans towards the latter more than the first.
“What we are looking for to identify how sustainable this rally is on the stockings, let’s get back is really leadership,” said Turnquist. “Are we going to have this risk on rotation? We haven’t seen that, so that gives me a little break.”
Turnquist would be encouraged if an extent occurred, and soon. This occurs when an overwhelming majority of actions gather together, generally more than 90% of listed shares.
“It’s disappointing right now,” said Turnquist. “Do not say that we have to keep the stockings, but I think it will be more a process.”
