Prominent market technician Ralph Acampora says the stock market is in bad shape and it’s worse than many on Wall Street investors appreciate.
A pioneer in the field of chart-based trading, Acampora said the technical damage that has resulted in the Dow Jones Industrial Average DJIA, +0.97% and the S&P 500 index SPX, +1.09% erasing all of their gains for 2018, and the Nasdaq Composite Index COMP, +2.01% falling into correction territory—usually characterized as a decline of at least 10% from a recent peak—will take months to repair.
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“From a technical perspective, the damage that has been done technically to the stock market is much, much worse than people are talking about,” he told MarketWatch in a phone interview on Tuesday.
Acampora cited a break down of so-called FANG stocks—a quartet of technology and internet-related companies that include Facebook Inc. FB, +3.81% Amazon.com Inc. AMZN, +4.42% Netflix Inc. NFLX, +5.59% and Google-parent Alphabet Inc. GOOGL, +3.91% —as the clearest sign that the worm has turned on the bull market.
On Monday, those names, which have been significant catalysts for market sentiment and price moves, shed a combined $120 billion in market value. On top of that, Amazon became the most recent of that group to close in bear-market territory, defined as drop of at least 20% from a recent peak.
“I’ve been a bull for a long, long time and like everyone, I was waiting for a correction but this is something different,” said Acampora, who many chartists refer to as the “godfather” of technical analysis.
“All the leadership is getting crushed,” he said.
Acampora said he believed that the entire stock market itself would go into a bear market and said the current dynamic in the market was eerily similar to the stock-market crash of 1987, when the Dow slid a historic 22.6% in a single day on Oct. 19 of that year.
“Honestly, I don’t see the low being put in yet and I think we’re going to go into a bear market,” he said. He speculates that the market may not be healed until around the first quarter of 2019.
On Wednesday, the Dow gained 241.12 points, or 1%, to 25,115.76, the first time for the blue chip index to finish above 25,000 since Oct. 23. The S&P 500 advanced 29.05 points, or 1.1%, to 2,711.68, climbing for two days in a row, something it had not done since its three-day winning streak that ended on Sept. 20, but it still suffered its worst monthly decline in seven years. Meanwhile, the Nasdaq rose 144.25 points, or 2%, to 7,305.90, for its worst monthly drop since 2008.
The Dow would have to fall another 2,900 points, or about 10%, from current levels to close 20% below its Oct. 3 record close of 26,828.39, as of Tuesday late-afternoon trade.
When reached on the phone, the market technician said he was painting his barn to avoid “the agony of watching” the market’s gyrations. “I don’t want to watch the market get sloppy again, so I figured that I’m better off painting.”
Acampora isn’t alone in his bearish view. Michael Wilson, Morgan Stanley’s chief U.S. equity strategist, said he believes the market is undergoing a “rolling bear market.” He was among the first to spot fractures in the market’s uptrend.
To be sure, other analysts believe the market is returning to normal and has just entered a more volatile phase due to interest-rate increases by the Federal Reserve, which has lifted borrowing costs for corporations and individuals and prompted a broad reassessment of stock values. That factor among myriad others has rattled investors’ sentiment.
Also read: Federal Reserve minutes indicate interest rates will have to rise high enough to slow down the economy.
Tom McClellan, publisher of the McClellan Market Report and another high-profile chart technician, told MarketWatch that the current action is more a function of seasonal volatility associated with October and not a more significant upending of a 10-year bull market. He viewed stocks as oversold and says he remains bullish on the stock-market outlook.
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