Rally Caps Ready [Market Bottoms Out]
Halloween horror hit Wall Street a few weeks early this year.
Stocks were bludgeoned last week.
The bloodbath in bonds that I alerted you to last week spilled over to stocks, and with a vengeance.
On Wednesday and Thursday alone the Dow Jones industrial average plunged 1,400 points on the way to falling 4.2% for the full week.
Few stocks escaped the carnage with the formerly market-leading technology sector tanking nearly 8% last week. It was the steepest setback for stocks since February, which was — gulp — in the midst of a 12% correction for the Dow.
Right now the Dow is down over 5% from the recent peak, meaning more bloodletting could lie ahead.
The magnitude of the recent carnage is as breathtaking as the speed of the decline: $2.5 trillion in stock market wealth has been lost since the record high just a few weeks ago.
One-third of the stocks in the S&P 500 Index — 165 issues in all — are already down 20% or more from their highs. This means those stocks are already wallowing in their own private bear markets.
For those investors looking for a silver lining amid all the doom and gloom, the market is now more oversold than it’s been since February 2018’s lows.
Several market breadth and contrarian indicators including the number of advancing versus declining stocks, the volatility index (VIX) and the ratio of puts to calls are all signaling a bottom should be near.
Sure enough, on Friday the Dow made a stand and rebounded nearly 300 points to close out a bad week on a more positive note. Looking forward, however, there’s plenty of damage already done to the stock market outlook.
I would not expect much lasting strength to materialize until after the November midterm elections.
At that point, however, there’s a strong chance the stock market will experience its typical year-end rally.
After all, November and December are two of the best performing months of the year for stocks historically.
Bottom line: Stocks have traveled round trip from record highs in late September to extremely oversold by mid-October.
Investors should remain wary of market tricks rather than treats at least through Halloween, but stocks are likely to find their footing again by November.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch
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