US stocks took a beating in Monday Wall Street trade.
How far can the sell-off in stocks go?
Richard Coppleson of Bell Potter securities and author of “The Coppo Report” — a daily must-read in Australian equity circles — had this to say in his note at the close yesterday:
The US is overdue a -5% to -10% correction & it’s now in the hands of the investors who may be overextended or fearful, who could easily extend the falls as some simply take profits & go back to cash for a while. As we know this selloff needs to be bought – the only question is where & when does it stop. We are so used to 1 or 2 day falls & then quick rebounds – now if that doesn’t happen – some may back away from buying the dips.
Don’t forget what we saw with bitcoin – whenever it came back over the last few years, everyone bought the dips – but the latest fall from US$19,000 to US9,000 has seen many now just walk away – the fall in the US won’t be anything like that – but the psychology of a market fall can see short term falls extend.
So for now it’s a buy the dip opportunity – just when is the only question. We now have a high in place to work back from & if you think the US mkt will close higher then we need to think of how big are the “average US drawdowns”. Well the average selloff in the US has been about -10%, so that just gives us a figure to watch.
As Coppleson points out, one of the problems with rapid sell-offs is they can feed on themselves because of sheer fear that the index falls have further to run.
There’ll certainly be a lot of that in investors’ minds at the moment.
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