If the stock market is going to follow its historical pattern during a midterm election year, it would bottom out right now. There is no broad consensus view, but some technical strategists see more turbulence for stocks, even if there is a near-term bounce. Some also see the potential to rise in the fourth quarter. Historically in the medium term, stocks bottomed out in October before ending the quarter higher. “Typically, it’s after Oct. 9 that you start to see better performance,” said Ari Wald, technical analyst at Oppenheimer. The analyst said that date was the average day the market bottomed in the last eight midterm election years, dating back to 1990. Wald said he is looking for a possible catalyst this week, in the next consumer price index report on Thursday, and also the The next meeting of the Federal Reserve in early November. “Our view is that trading risk should continue to linger as long as the 10-year rate is above 3.5%. That’s really what’s weighing on the market, more strongly throughout the year,” he said. said Wald. The 10-year benchmark has been a key factor for the stock market this year. Growth stocks and technology react negatively when yields rise. Wald said both the CPI and the Fed meeting could boost the yield, which was at 3.88% on Monday. If the CPI is not as hot as expected, yields could fall. Yields move inversely to price. Wald said it was positive that the small-cap Russell 2000 held its lows. “The key positive is really how the market has been washed,” Wald said. “It suggests the market is trying to bottom out here… The setup is still there for the potential Q4 turnaround.” The analyst believes the big capitulation fund came in June and the next fund could be less dramatic. “These market funds are developed in two phases,” he said. “First you have the bang, then you have the whine… Now what we’re seeing is consistent with the whine.” According to DataTrek Research, the S&P 500 is down 23.6% for the year, but nine days were responsible for the entire decline. “Most occurred around CPI reports or Fed-related events. One was related to Russia and Ukraine, and only 2 were tied to disappointing business earnings. Traders may want to be cautious in Thursday’s CPI report,” DataTrek notes. “Investors should moderate their expectations for US equity valuations; history shows that they contract during periods of high volatility.” Economists expect the consumer price index to rise 0.3% or 8.1% from last year, according to Dow Jones. This is lower than the 8.3% year-on-year reported in August. “We need that trigger, a lower turn in interest rates,” Wald said. “Overall, our view is that the rate market is trading more on Fed policy and the Fed’s commitment to fight inflation rather than the actual threat of inflation. I would expect the CPI continues to decline as it has for three consecutive months, another year. What will prompt a change in Fed policy is the key question here.” Katie Stockton, founder of Fairlead Securities, said Friday’s drop took the S&P 500 to summer lows. The technical indicators you are seeing are sending mixed messages, with one of your indicators flashing a buy signal. “Because of the latter, there is still a good chance of a relief rally. The initial resistance is near 3,914.” But expect any rebound to be a selling opportunity given the market’s bearish cycle. That could mean a 3,500 test. Mark Newton, global technical strategist at Fundstrat, said he expects the market to be preparing to bounce back in the next week or two. “Energy continues to perform quite well, while the Aerospace and Defense names are also holding up. In summary, the risk/reward is increasingly positive in my view, as the downside risk looks very well defined at the lows of last Monday 10/3.” he wrote in a note. “Unless $SPX 3584 is taken out, it’s OK to buy this dip, waiting for a CPI hike/release next week.”
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