"The market is manic depressive and it swings from seeing only the positives to seeing only the negatives," notes the world’s biggest distressed-debt investor, Howard Marks, but for now, as Bloomberg reports, the extremes (in risk pricing and sentiment) that usually signal opportunity (or capitulation) are not present. As Guggenheim's Scott Minerd warns, "wholesale panic" is what's needed before the market turns, and as RBS notes, "1,800 might come pretty quick."
As we noted previously, the question of capitulation remains unanswered...
"Sentiment" - musings of a madding crowd - would suggest 'yes', The Bulls just capitulated (notably more than than in the August collapse)...
h/t @Not_Jim_Cramer
"Volume" - real traded action of a crowded trade - would suggest 'no' - The Bulls haven't even started selling (no panic here, especially relative to August's collapse)...
h/t @DonDraperClone
But, as Bloomberg reports, in a market bouncing up and down 2 percent a day, investor psychology is taking a beating in U.S. stocks. But nerves may need to fray further before the volatility abates.
To those who monitor sentiment for clues to the market’s direction, these aren’t things that add up to capitulation, when bulls give up and prices fall to levels where calm is restored. While last week’s losses capped an 8 percent tumble that equaled the worst start to a year on record, they see enough optimism left to keep gyrations coming.
“Wholesale panic” is what’s needed before the market turns, according to Scott Minerd, who oversees $240 billion for Guggenheim Partners LLC,. “You start to see a huge surge in volatility because everybody is just trying to get through the exits, and they’re pushing prices down just to get out of the positions.”
VIX remains unimpressed (relative to August)
But, looking deeper into volatility markets, data compiled by the Commodity Futures Trading Commission show that hedge funds and other large speculators bet against more gains in the VIX last week, with a net short position of about 6,500 futures.
It appears, however, there is more to come to the downside or the "most hated" bull market just became the "least panicked" bear market?
“The market is manic depressive and it swings from seeing only the positives to seeing only the negatives,” Howard Marks, a co-founder of Oaktree Capital Group LLC, the world’s biggest distressed-debt investor, said in an interview Friday on Bloomberg Television. “Maybe it has to get dramatically undervalued, which means it swings too far to the negative.”
The S&P 500 ended Friday at 1,880.33 after sliding as low 1,857.83 earlier in the day. For chart-watchers, now that August’s low of 1,867 has been tested a fourth time since 2014, “1,800 might come pretty quick,” said Ryan Larson, the Chicago-based head of U.S. equity trading at RBC Global Asset Management Inc., which oversees $280 billion.
That’s a level that makes sense to Jim Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management Inc., which oversees $351 billion.“What this correction is about is finding the new valuation level that’s sustainable in the face of the new pressures that the market is going to face now that the U.S. is growing at full employment levels,” he said.
“My work leads me to about 16 times earnings, which would be right at 1,800 or a little less.”
And as a reminder, "markets crash when they are oversold."