Investors are studying a wide range of technical indicators, from infection counts to more traditional indicators, for clues on the direction the markets will take in coming weeks as the pandemic caused by the novel coronavirus continues to spread.
Some point to signs that the worst of the waterfall sell-off that took the S&P 500 down as much as 34% from its record closing high is fading and the bottom has be set.
Volatility has eased from its March highs.
Fewer US stocks are hitting new 52-wk lows. Liquidity in fixed-income markets has improved, and credit spreads have come in from their March highs.
Most of the damaging machine selling was seen in mid-March
Economic indicators like employment data are only beginning to factor in the scale of economic damage wrought by the virus pandemic, so investors looking to information on the virus’ spread to gauge the direction asset prices are likely to take in here.
Investor sentiment seen as a contrarian indicator is a Key signal pointing to the turnaround in US stocks.
Bank of America Global Research Sell Side Indicator in March dropped to 54.9%, at that mark or lower, US stock returns over the following 12 months have been positive 94% of the time.
Contrarian indicator means Bearish investors may presage a Bullish market and vice-versa.
The VIX had climbed to its highest marks since Y 2008 during the mid-March market sell-off has closely tracked the number of countries where the daily growth of coronavirus cases exceeds 10%.
The index has fallen significantly as the number of countries with a sharp rise in cases stopped.
Any improvements in that disease trajectory have the potential to limit the severity of an equity index retest this Spring.
And more importantly, how the outbreak story evolves over the Summer and into the fall will dictate the overall duration of the Bear market.
Tracking the number of US states with 10% or higher daily growth in confirmed cases reveals a similar pattern. The BAC index on Friday stood at 48.43, well below its all-time closing high at 82.69 on 16 March.
DJIA futures rose solidly Sunday night, along with S&P 500 futures and NAS Comp futures as new coronavirus cases slowed in the US, Europe and worldwide.
Note, the Sun will shine again as there is no place for the $12-T sidelined to go but into stocks.
Have a healthy week, stay at home, keep the Faith!