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Is Wall Street's biggest question: After a 7 percent drop from the highs, has the S&P 500 bottomed out? The answer may be impossible to know for sure, but historical analysis suggests that stocks may have a bit further to fall.
Carter Worth of Sterne Agee looked back on all the market's corrections of 5 percent or more going back to 1927, in order to get a sense of how long they tend to last, in terms of both time and magnitude. He learned that the average (mean) correction is 12.2 percent, and lasts for 41 sessions. The median correction, which is shallower because it is less affected by outliers, is 8.2 percentage points deep and lasts 22 sessions.
Given that the S&P closed Tuesday just over 7 percent off its highs, Worth takes this information as an indication that there will be more to this selloff.
"Were it to just be in line with the median, it means we have at least a percentage and a half to go. Were it to be in line with the mean or average decline, we're talking about another 4 or 5 percent to go. The principle being that this is unlikely to be at an end," Worth said Tuesday on "Futures Now."
Additionally, stocks were at all-time highs a mere 18 sessions ago, "so it's not even mature in terms of duration, not to mention magnitude," Worth added.
And while this may be dismissed as a quirk of statistics—after all, if one starts with all the time that stocks ever fell more than 5 percent, one is bound to find a bevy of times when it has fallen substantially—Worth says there are specific market dynamics that get triggered when stocks drop 5 percent or greater.
"The reason that that's an important number is that when a stock or an index or a currency goes down 2, 3 percent, nothing really happens, that's noise," Worth said. But starting at 5 percent, "stop losses start kicking in, or people start to de-risk, or margin calls [are triggered], or the spouse calls up and says, 'My gosh, we're losing money, do something.' The point is that once you're down 5 percent, you usually go down more."
It's certainly looking that way on Tuesday morning. S&P futures are down sharply in early trading, with the December S&P futures contract hitting the lowest level since April.
After falling as much as 7.2 percent from mid-September highs, the S&P 500 is enjoying a healthy bounce on Tuesday. But Sterne Agee's chief market technician, Carter Worth, contends that this is not a dip worth buying—and once investors realize that, market psychology will change in a big way.
Over the past two years, buying shallow market declines has been a winning strategy. And even though this recent stock slide has been a bit steeper from prior declines in the market, many investors still appear to believe that buying now is the right call.
"We know that last week we had that huge ricochet day and it of course gave it back the next day. We know on Friday, which was a horrible day, at some point we were green. We know yesterday, we were green at one point, and then—as long as it keeps doing that, there's no way that it's over," Worth said Tuesday on CNBC's "Futures Now."
"Someone's in there thinking, 'Aha! This is an opportunity. Buying the dip's the right thing to do, it's served me over an over again.'"
Worth makes the point that that "until that psychology is broken, I don't think that this is different."
After three wretched sessions, stocks kicked off the session with a rally Tuesday, but quickly erased their gains. Some traders say the selling may not be over.
It's been a gut-wrenching few weeks for the market, with the S&P 500 now down 7 percent from its highs, and few signs of a turnaround emerging. The S&P sliced through its widely watched 200-day moving average on Monday, and the selling accelerated late in the session, as the CBOE Volatility Index zoomed to a two-year high. Late pain led the index to close just below 1,875, the lowest level since May.
S&P futures are gaining slightly in early trading. As third-quarter earnings season began, Tuesday morning results from JPMorgan, Citigroup and Johnson & Johnson have beaten expectations. Yet traders warn that technical indicators may outweigh good earnings new in the near term.
The selling "may not continue into today—but I don't think it's over," Anthony Grisanti of GRZ Energy wrote to CNBC. "Technicals alone point to a lower market. It looks like we are headed for a 10 percent adjustment."
Notably, the S&P has not suffered a 10 percent correction since summer of 2011. Many have long called such an event overdue.
After a terrible week for stocks, bulls are looking for earnings to come to the rescue.
The S&P 500 lost 3.1 percent in the prior week, for its worst week since May 2012. Notably, the week wasn't all red, with stocks interrupting their drumbeat of down days to enjoy the best day of the year on Wednesday. But traders sent the S&P to its close in months on Friday.
More stomach-churning sessions may be ahead as earnings season starts in earnest this week, with giants like JPMorgan Chase, Google, and General Electric (among many, many others) set to unveil their third-quarter results. The big question is whether the spate of earnings will staunch the selling.
"I think the bar is quite high for people to start to get comfortable," said Thomas Lee, managing partner at Fundstrat Global Advisors. Noting the bevy of issues around the world—which range from hard questions about Europe, to the Ebola virus, to the Federal Reserve ending its quantitative easing program—the generally bullish Lee acknowledged that "there's a huge list of worries here."
The concern underscoring all of these smaller issues has been valuation. As Nicholas Colas of ConvergEx wrote in a Friday note, "Against measures of long-term earnings power, the S&P 500 is clearly expensive at 25 (times) trailing 10-year earnings. When compared to current earnings power of about $120, the multiple is 16x.
While that might be reasonable in an environment of stronger global growth, "it is, perhaps, not a multiple appropriate for a sloppy expansion in the U.S. and threats of deflation and recession elsewhere," Colas said.
However, Lee said none of the recent headlines cause him to second-guess his conviction that the U.S. economy will stay strong.
"When people get concerned about valuation, it's because they're insecure about the length of this business cycle. The valuation concerns really speak to how many investors believe that this rally is all because of central bank actions. But earning are only going to peak when this business cycle peaks," Lee said. The investor added that the upcoming corporate earnings should reassure investors that this hasn't happened just yet.
"Investors are going to look back and realize that this was one of the better chances for them to really step in," he concluded.
After three tough years for gold, could a bullion turnaround finally be in the cards?
That's the argument made by Lindsey Group's chief market analyst, Peter Boockvar, who says that the Federal Reserve meeting minutes released this week point to a reversal for the precious metal.
"The three-year bear market in gold, in my opinion, is over, because yesterday in their minutes, the Fed officially threw their hat in the global-currency-war ring," Boockvar said Thursday on CNBC's "Futures Now."
Boockvar refers to the unease that Federal Open Market Committee officials voiced about the dollar's strength against foreign currencies.
"Some participants expressed concern that the persistent shortfall of economic growth and inflation in the euro area could have adverse effects on the U.S. external sector. ... A couple of participants pointed out that the appreciation of the dollar might also tend to slow the gradual increase of inflation toward the FOMC's 2 percent goal," the minutes record.
Boockvar's interpretation is that after standing by and watching a bevy of central banks around the world take measures (lingual or market-based) to reduce the level of their currencies, "the Fed finally decided, 'You know what? I want to be part of this battle.' And to me, that's the last missing piece in the gold bull case in the context of a three-year bear market."
The Federal Reserve's stimulative policies have been widely credited with improving the American economy and juicing the stock market. But Peter Boockvar, a well-known critic of the central bank, metaphorically says that one group has been killed by the Fed's policies: savers.
"In the whole discussion of the Fed's desire to improve the economy by trying to convince people to borrow and spend and invest, the saver gets lost in the sauce," Peter Boockvar of the Lindsey Group said Thursday on CNBC's "Futures Now." "Now that we're six years into this grand experiment, and the Fed just wants to keep this going, I wanted to be a voice for those savers that are suffering from this policy."
Boockvar points out that while the stock market has soared partially as a consequence of low interest rates, those low rates have proven extremely painful for a large group of people.
"This is not a free lunch. Someone is suffering from this, and it's the saver. There's $9.5 trillion sitting in zero-interest-bearing securities, whether it's a money market [fund], a checking account, or a savings account," he said.
The dollar has enjoyed an incredible run over the past three months, rising 7 percent against the basket of currencies in the U.S. dollar index. And while currency expert Jens Nordvig says the move has legs, he believes that a continued dollar rise will now depend on strength against riskier emerging market currencies.
"I think we could see batches of enhanced U.S. dollar strength against select emerging market currencies, so that's going to be a little different from the composition of dollar gains we've seen in Q3," said Nordvig, global head of foreign exchange strategy at Nomura, on Tuesday's "Futures Now."
The euro actually makes up 57.6 percent of the dollar index (often known by its index symbol, DXY) so recent weakness in the euro has certainly been a tail wind for that measure of dollar strength. But Nordvig predicts that the weakest currencies in the fourth quarter will be emerging market currencies like the South Korean won, the Malaysian ringgit and the South African rand.
Ahead of the monster September jobs report, S&P futures began to tick upward in an almost uni-directional move. And some call that an indication that some major players in the market got the bullish information early.
"I don't know of any issues or problems with the release of the data this morning," said Gary Steinberg, Bureau of Labor Statistics press officer.
At 8:30 a.m. ET, the Bureau of Labor Statistics reported that 248,000 jobs were created in September, and the unemployment rate fell to 5.9 percent (well above estimates of 215,000 jobs and 6.1 percent unemployment). They also significantly revised upward the July and August jobs numbers. The move sent S&P 500 futures on a significant rally, and seriously punished Treasury note and gold futures.
Read More US created 248,000 jobs in Sept
But several traders' eyes were drawn to the move that S&P futures made ahead of the report. From 7:32 a.m. to 8:06 a.m.. the S&P e-mini December futures rose steadily and without much hesitation. In that time period, the S&P futures were positive in 13 minutes, and negative in only five (the rest of the minutes were unchanged).
"Looks like a blatant leak to me," said Jeff Kilburg of KKM Financial.
"There are definitely people who are saying there was a leak," noted Jim Iuorio of TJM Institutional Services. "I think there's a solid chance of that."
However, Iuorio would bet against a leak, given that knowing the number wouldn't necessarily be enough to gauge where the market would go. Indeed, the futures initially fell at 8:30 a.m. before turning around, likely due to initial concerns that the number would lead the Fed to raise benchmark rates earlier than previously anticipated.
Even as stocks are sliding hard, the biggest options traders have been making bullish wagers on stock indexes—which could indicate that the big money senses a buying opportunity in the market.
The S&P 500 fell to a nearly two-month low on Thursday, and at one point looked primed to have the first four-day losing streak of the year. But on Wednesday and Thursday, some of the day's biggest trades have been sales of put options on the S&P 500 and the Nasdaq 100, as well as sales of call options on the VIX.
Since the VIX tends to rise as stocks fall and traders become fearful, these institutional-sized trades on the CBOE Volatility Index indicate that major options players think the worst may be over.
"What we've seen in the last day or so is people starting to unload their insurance, take that protection off," said Brian Stutland of Equity Armor Investments. "To me, when we get the market down and yet people are taking insurance off, it tells me that the smart players out there are trying to buy into this market—remove the insurance, and play to the upside in stocks."
Stutland says that with so much money behind them, these trades should carry some weight in investors' minds.
"When you talk about volatility, these are the smart traders out there in the world," he said.
Crude oil has gotten crushed this week, with West Texas Indermediate futures falling below $90 per barrel on Thursday for the first time in more than a year. And though oil has staged a mild comeback over the course of the session, crude oil futures are still 15 percent below the high set in June.
At this point, traders say bearish fundamentals and an awful-looking chart could point to more downside ahead for oil.
The main cause for the crude decline comes out of the Middle East, where Saudi Arabia surprised the market by opting not to cut production even in the face of declining prices. And according to trader Brian Stutland, "the Saudis are just starting to feel the heat. U.S. production has really put some pressure on them."
Yet even as supply will be higher than expected, Stutland noted on Thursday's "Futures Now" that the European economy continues to be in major trouble "which is weakening demand global, so it's not just a supply thing—it's a demand thing overseas."
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