Here are five things investors can watch for signs of when to buy stocks again

Published Tue, May 10 202212:02 PM EDTUpdated Tue, May 10 20221:16 PM EDT

Patti Domm @in/patti-domm-9224884/@pattidomm

Investors who are worried about the intensity of the stock sell-off can monitor a checklist of factors and events that strategists say could signal a bottom. That bottom is getting closer after Monday's furious sell-off pushed some indicators closer to extremes, those strategists say. Ari Wald, Oppenheimer technical strategist, said some of the items on his market bottom checklist still have yet to be checked off. "We don't think we're there yet. We do think market conditions have to get worse before they get better. If there's one indicator high on my list it's NYSE stocks above their 200-day moving averages. Major market bottoms coincide with a level below 20%," he said. The percentage of companies above their 200-day moving average was recently 23%, said Wald. The 200-day moving average is simply the average of the last 200 closes in a stock or an index, and it is seen as a momentum indicator. A close below the 200-day could signal more downside action, and a close that goes above it and holds there could precede a move higher in price. "We're getting closer. Some stabilization higher, a possible lower low, definitely getting closer to all those thresholds," Wald said. Lots of new lows Wald said another number he watches is the number of new highs minus new lows on the New York Stock Exchange. He said there were recently about 464 net new lows. "Market bottoms have seen 1,000 more new lows than new highs," he said. Follow the leaders Another factor to watch is market leadership. When the leaders roll over, it can be a sign the market is heading for a bottom. Focus in the last several sessions has addressed Apple, the biggest stock by market cap and a market bellwether for both tech in general and the consumer. "Traders will also continue to watch Apple and, if it breaks $150, that may have some repercussions in the market," noted Art Cashin, director of floor operations at UBS. The stock is close to that level now, trading as low as $153.14 Tuesday, after ending Monday at $152.06. Apple is about 7% of the S & P 500 and has a powerful sway over the benchmark. The S & P 500 fell below 4,000 Monday for the first time since March 2021, down 17% from its high. Katie Stockton, founder of Fairlead Strategies, said Apple's price chart signals possible weakness. If it breaks $150, the next target could be $139 and a move to about 3,815 on the S & P 500. Other big tech names that have an outsized sway on market sentiment and indexes are Microsoft and Tesla . Microsoft broke support Monday at $270 and closed at $264.58, down 3.7%. It was back above $270 briefly early Tuesday and was hovering around $265.50 in late morning trading. Robert Sluymer, technical strategist at Fundstrat, said the leadership stocks have to break in order for the market to bottom, and it's key that the S & P 500 fell through the 4,100 level and now trades below 4,000. He noted that the sell-off in market-leading energy stocks was also important on Monday. The Energy Select Sector SPDR Fund fell 8.3% Monday, but remains 37% higher year-to-date. It was up more than 1.3% Tuesday. Crest in volatility A sharp spike in the Volatility Index would be another sign of capitulation. The VIX, traded on the CBOE, represents the puts and calls on S & P 500 stocks, and a rising VIX signals more fear and uncertainty. Some strategists say when it hits 40, that would be a sign the stock market is capitulating. Other strategists say that level could be even lower. Wald said at 35, he sees the VIX as meeting his goal. The VIX rose above 35 Monday, but was just below it on Tuesday. "The VIX above 35 or so has coincided with market bottoms in history," he said. "It's really the one indicator from our market bottom checklist that has reached our threshold." Wald said it is only one signal to buy stocks. "The lack of extremes elsewhere suggests it's still too early to buy stocks broadly," he added. Interest rate rise The stock market, and tech stocks in particular, have been tethered to the path of the 10-year Treasury yield . The 10-year is the most closely watched bond yield, as the benchmark and that most closely influences mortgages and other consumer and business loans. The 10-year hit 3.20% Monday but was back at 2.97% Tuesday. The level market pros are watching is 3.25%, a point at which it peaked in late 2018 when the Federal Reserve was last raising interest rates and paring back its balance sheet. With the prospect of more rate hikes from the Fed, the Treasury market has been selling off and yields have been jumping. The 10-year was at about 1.5% to start the year. Strategists have been warning the 3.25% level could have a significant impact on stocks. "You're pretty much right there. It was there more or less." Yields "are testing the 2018 high," Wald said. Bond strategists have been expecting a peak of around 3.25% to 3.5%. Wald said a move higher than that could spell real trouble for the market. "Forward 12-month S & P returns drop more significantly when this yield has been above 4%," he said. The S & P 500 Tuesday was back above 4,000 in early trading but fell below it again by late morning. Strategists continue to look for a low closer to 3,800. "A loose road map would point to 3,800 on the S & P, and a potential low point in the third quarter," Wald said, adding it could also get there even sooner. "Most importantly will be how our indicators look as you get to that level." He views the market decline as a cyclical bear market within a secular bull market. "The median bear has dropped about 20% ... over a seven-month period," he said. "These downturns can be short and sharp or long and shallow." Wald said if the bottom comes sooner, it could continue to be choppy into the third quarter. In midterm election years, stocks are often negative in the second and third quarters before turning higher in the fourth. He said there is also the seasonality of the "sell in May" period, a market adage that warns investors to sell in May, and stay away until the better-performing November-through-April period.

Traders on the floor of the NYSE, May 3, 2022.

Source: NYSE

Investors who are worried about the intensity of the stock sell-off can monitor a checklist of factors and events that strategists say could signal a bottom.