- As stocks trade well off their all-time highs hit in the second half of 2018, technical analysts at Oppenheimer told clients they’re watching for one indicator that would signal the stock market has bottomed.
- Strengthening breadth – the number of stocks advancing relative to the number of stocks declining – is one sign the firm would feel confident stocks have found a floor.
- Watch stocks trade live.
Stocks in the US kicked off 2019 on a volatile note, extending the market’s turbulence in 2018, and trading well below their all-time highs hit in the second half of 2018. Here’s where the major US indices stand:
- The S&P 500 has shed 15% from its all-time high of 2,940.91 last September.
- The Dow Jones Industrial Average has is down 14% from its all-time high of 26,951.81 last October.
- The Nasdaq Composite has tumbled 18% from its all-time high of 8,133.30 last August.
And while the selling has dissipated, the technical analysis team at Oppenheimer says it’s still not ready to give the all clear. They say investors should watch for one main sign to know that the stock market’s bottom is in.
Ultimately, it’s all about one word: participation. Oppenheimer is watching stock-market participation measured by breadth, or the number of stocks advancing versus the number of stocks declining. Several market-watchers cited breadth last year as reason to expect more selling, proving to be a reliable measure.
Oppenheimer, specifically, is paying close attention to the number of NYSE stocks trading above their 200-day moving averages.
“At the lowest point of the market’s Q4 correction, only 8% of NYSE stocks were above their 200-day moving average-a deeply oversold condition that’s been followed by above-average gains over the next 6-12 months but below-average returns over the first 1-3 months,” a team led by Ari Wald, Oppenheimer’s head of technical analysis, wrote in a note on Tuesday.
Wald and his team wrote this measure of breadth rose to 70% in prior years before the start of a new bull run.
“In addition, to confirm the resumption of a new bull market we’d like to see this internal breadth gauge surge to 70% like it did at the start of new bulls in 1994, 2003, 2009, 2013, and 2016,” he said.
More broadly, Oppenheimer believes the bulk of the S&P 500’s sell-off has come to pass, “and now requires time to base.”
The firm is watching two key levels in the S&P 500 for 2019 – one to the upside and one to the downside. The firm sees the S&P trading up to its 200-day moving average, or the 2,700 level, which would imply a rise of around 7%.
To the downside, the level to watch is 2,375, 5% below its current level.
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