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Will Wall Street enter a bear market?  - Technical Analysis

Will Wall Street enter a bear market? – Technical Analysis

On Monday, the US stock market experienced one of the most violent events in its history. Major stock indices retreated, catching their last breath, before closing the session.

Volatility dominates the market. Investors’ uncertainty in the face of geopolitical tensions between Ukraine and Russia, as well as concerns about a possible early rise in interest rates, a topic to be determined on Wednesday at the end of the two-day meeting of the US Federal Reserve (Fed), are sending volatility indicators higher.

The Cboe Volatility Index (VIX) ended yesterday’s session at 30 points, a snapshot from the usual average of 19.5 points.

On Monday, the Dow Jones Industrial Average closed 0.29% higher at 34,364.50 points after six consecutive sessions of lows. The Nasdaq Technology Index rose 0.63% to settle at 13,855.13 points. Since Wednesday, this indicator has been in a correction zone (it lost more than 10% from its past high).

In contrast, the Standard & Poor’s 500 (Standard & Poor’s 500) advanced 0.28% to 4,410.13 points, after the benchmark index with distinction for analysts around the world recorded a decline during the day by about 4%. According to a Bespoke Investment Group study, a “last minute rally” is not a good indicator for the market.

According to the investment house, this is the sixth time since 1988 that the S&P 500 has reached the end of the session to correct a decline of this magnitude (or greater). In the past, when it recorded, for example, “a decline of 5.5%, corrected in the last minute, after three months, the index finished the day down 7.3%.

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Given this data, what can be expected from the future of the major stock indices?

Opinions change through analysts. For JPMorgan Chase, which issued a “research” note on Monday, the pullback is “just a correction to the 2021 gains.” “Market concerns about increased reports, calculations and interest rates are being exaggerated,” the team led by Marko Kolanovic wrote.

Already for Julian Emmanuel of Evercore ISI, whose opinion was expressed in another note published yesterday, “Examining rare Fed announcements of unusual rate increases, the S&P 500 support line is expected to stabilize at 3,575 points,” down 23.8% compared to at the last closing price.

Dubbed a “pessimistic analyst” by a Bloomberg TV interviewer, Barry Bannister of Stifel follows this line of thought in an interview with the US agency: “The S&P 500’s last-minute rally wasn’t a real recovery.” The specialist concludes, “There are indications that macro indicators, such as inflation and the PMI will be below expectations. If that happens, the scenario will be a hard landing.”

For Amy Wu Silverman, Equities and Derivatives Strategist at RBC Capital Markets, “Investors take money off the table, times ahead are times of downside.”

Nasdaq will enter a “bear market”

In terms of the tech-savvy Nasdaq, there are also more and more analysts arguing that the index will enter a “bear market”.

In an interview with Bloomberg TV, Jeremy Siegel, professor of finance at the University of Pennsylvania and author of the popular book “Stocks for the Long Run,” argued that “we haven’t seen the Nasdaq drop completely yet, the index is going to fall about 20% compared to November,” which means a drop by 20%, compared to current levels.

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For academics, the volatility of the technology index “won’t withstand four rate hikes, it’s time to get the quotes right,” the finance official defended.

Yesterday, the investment “guru” of Morgan Stanley, Andrew Slimmon, who is responsible for overtaking the S&P 500, which is considered the number one benchmark in the world, by making a return of 36% for the investment bank – compared to Monday, in an interview with Bloomberg Television, the current fall of the Nasdaq Compound with the “.com” bubble that occurred between 1990 and 2000.

“Be careful. Don’t invest in some stocks that you think will recover from a fall, because my experience dictates that many prices go up with investment fever, but that fever passes,” commented Andrew Slimmon.

“The reason behind this increase last year is that we implemented the brochure. The brochure teaches that after a recession, cyclical stocks are doing well, because people are choosing assets that are less economically sensitive,” the director explained.

The dot-com bubble occurred between 1990 and 2000 during the explosion of initial public offerings (IPOs) of companies associated with the Internet market. During this period, the abundance of investment in companies merely for speculation, mainly from the vehicles of “investment capital”, regardless of their income and profits, led to the bursting of the bubble.

Between March 10, 2000 and October 9, 2002, the Nasdaq fell by 78%. It took 13 years to get back to the level it was before the bubble burst, which happened on April 23, 2015.

The technology index fell last Friday by 2.72% to settle at 13,768.92 points. Since Wednesday, this indicator has been in correction territory, losing 10% compared to the previous closing record set on November 19.

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The all-time high on the Nasdaq at 16,212.23 points, set on November 22. Which means that in less than two months he has already lost 2443.31 points.