Canaccord’s Dwyer talks about a stock-market bounce, the investors looking to get back into the stock market once the selling stampede finally subsides might not want to chase the initial bounce, said a prominent Wall Street analyst.
On Wednesday, the Dow Jones Industrial Average turned lower after jumping more than 460 points in early trade, while the S&P 500 index also turned south. Both the market gauges declined more than 6 percent over the course of Monday and Tuesday the S&P 500’s biggest two-day loss since 2015 as worries increased over the spread of COVID-19 outside of China.
If in the near term, the stocks do find their footing and reclaim some ground, the Canaccord Genuity market analyst Tony Dwyer warned against getting too excited about it. As he argued that an attempted recovery would likely follow the same pattern, as was seen in the immediate wake of S&P 500’s 6.1% decline in February 2018 and a 7 percent pullback in August 2015, he said in a Wednesday note to investors.
Dwyer said that there were three signs as of Tuesday’s close that a near-term washout hinting towards the potential for an “oversold reflex rally”:
“Following both of those prior occurrences, the market showed a spirited rebound in coming days/weeks ….. but ultimately retested the initial lows,” he wrote.
“An oversold bounce followed by a test of the low should do the trick in setting the stage for the next significant and sustainable leg higher,” he said.
Dwyer said that although the pullback had taken the S&P 500 back into Canaccord’s expected correction range of 5% to 10%, he was “waiting to put offense sustainably back on the field” until there was a “positive thrust higher in price and volume” or the firm’s two intermediate-term indicators reached levels that signaled the next leg higher.