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Market has become ‘trader’s paradise’: Technician

The roller-coaster ride for stocks continued this week as the S&P 500 and Dow both ended their worst month since May 2012. And according to one technician, the volatility could continue through the end of the year.

"We're categorizing this as a bull market correction rather than the start of a bear market cycle," Ari Wald said Monday on CNBC's "Trading Nation." All major U.S. indexes fell more than 6 percent in the month of August, with most of the selling happening in the last 10 trading sessions. Wald defined these types of downturns as "sharp and brief," but "still require time to stabilize."

In order to get a clearer understanding of when stocks might regain footing, Wald, head of technical analysis at Oppenheimer & Co., drew comparisons to past pullbacks. "We compare the current setback with [similar] nonrecessionary, secular bull corrections in 1962, 1966, 1984, 1987, 1988 and 2011," he said. "In these examples, the S&P 500 needed between two to six months between breakdown and breakout."

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Of the most recent correction four years ago, Wald said, "There was this waterfall-like decline that was very similar to what we saw last week and it took about two months to stabilize." For Wald, a chopping process will need to occur in the next several months in order for the existing bull market to resume.

In the meantime, Wald called current price action a "trader's paradise," meaning investors should be "eyeing mean-reverting opportunities, like selling the current oversold bounce in the S&P 500."

Boris Schlossberg of BK Asset Management took a more optimistic approach to the current environment, calling last week's selloff a "snooze you lose" kind of dip. "I really think the lows are behind us," he said Monday. "I think the economy itself is fundamentally much stronger than the dip in the market."

Schlossberg added that as economic indicators continue to show positive expansion, fears of a recession should recede and the market will resume upside.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Brian Sullivan

Brian Sullivan is co-anchor of CNBC's "Power Lunch" (M-F,1PM-3PM ET), one of the network's longest running programs, as well as the host of the daily investing program "Trading Nation." He is also a frequent guest on MSNBC's "Morning Joe" and other NBC properties.

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