The market's quick correction cleared away some speculative froth, but there is likely to be more choppy trading before stocks can head back to highs.
Stocks rallied Wednesday, and the Nasdaq bounced back after its fastest 10% decline ever, as investors looked for bargains among beaten-down tech and momentum names. But strategists say it seems more likely the market has not yet hit bottom, and stocks could be in a choppy mode for a while, as investors focus on the election and the economy.
Historically, the market has been a weak performer in September, and stocks could stay under pressure for awhile even there are rallies. A man walks a dog in the shade away from the midday sun past the New York Stock Exchange building in Manhattan, during hot weather in New York City, New York, U.S., August 11, 2020.The swift correction in Nasdaq and technology stocks has cleared away some of the market's speculative froth, but there is likely to be a period of choppiness before stocks begin a new march higher, strategists say. Stocks staged an impressive spring back rally Wednesday, with the Nasdaq recovering 2.7% after a three-day 10% decline, the quickest correction ever. Stocks like Apple, Tesla, Amazon and Microsoft all gained sharply. The S&P 500 was up 2.4% , and the Dow also jumped 2.3%. The small cap Russell 2000 lagged with a 1.5% gain. "We've seen this before. You get a down 10%, and people go right back in. But I think we do have an awful lot of questions," said Steve DeSanctis, Jefferies equities strategist. DeSanctis said the election is hanging over markets, as well as concerns that it could be contested if there's no clear outcome Nov. 3. There is also worry about the economic recovery and fate of the next fiscal stimulus package. "We're saying range bound," said DeSanctis. "Until the market answers all these questions, it's hard to see the same type of blow off we saw in July and August." Matt Maley, chief market strategist at Miller Tabak, said the market likely needs another rout before it can rebound. "That bounce gives people encouragement that the worst is over, but when we make a lower low, that's when they throw in the towel," he said. "You usually get a second leg...I don't think we're going to have a 35% decline like we saw last time because the Fed is there to do whatever it takes to prevent that from happening." Maley said he does not expect to see capitulation and an end to the sell-off until there's a rally that fails. "The failed rally doesn't usually take a long time," said Maley. "I think this is something we're going to be playing with at least for the month of September. My [S&P 500] target is 3,200. The 15% level is 3,000. That's the level we bounced off of in June twice. I think we'll hold that level. That's the line in the sand."Scott Redler, partner with T3Live.com, said investors still have a positive view about the market and traders were looking for a rebound. He said the S&P 500 will be tested when it reaches the 3,427 to 3,460 resistance area, a zone that is about half of its recent decline. "Usually, you get a three day decline and you get a bounce back. The question is what kind. We still have to see if this is different," said Redler, who follows the market's short-term technicals. "So far, all they really did is take out the momentum in the market and bent it. It's definitely far from broken." Redler said his gut feeling is the low was not put in during Tuesday's sell-off. "Usually bottoms are made with a washout, not a bump up and grind. It's hard to come to any clear conclusion," he said. Redler said he is watching theThe QQQ was up 3.2% Wednesday, at about $278. Redler said an important level will be $284 to $286. "This is the first rebound attempt. It could go for a few days to work off the oversold nature of the market because we came down in such a fast and furious manner," he said. "The easy short was made, the easy long was made, and now it's going to be a battle ground to see who was right four weeks from now."
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