Source: Golden Ten Data
Most well-known Wall Street players believe that several indicators show that the sell-off wave of US stocks is coming to an end, and that US stocks will reach new highs before the end of the year...
Tom Lee (Tom Lee), a well-known Wall Street leader and co-founder and head of research at Fundstrat Global Advisors, an American investment agency, believes that the wave of US stock sell-off that began at the beginning of the month and has continued for several weeks is coming to an end.
Lee, known as Wall Street's “most accurate predictor,” said, “US stocks performed strongly in the first quarter of 2024, so the fact that US stocks are consolidating or even falling is not entirely surprising. The difference in our current opinion is that we don't think there will be a more drastic decline in US stocks in the future.”
Foreign media said that the decline in US stocks was driven by the double safe-haven response of investors worried about recent inflation trends and heightened geopolitical risks in the Middle East. However, Lee anticipates that these risks will eventually dissipate, paving the way for US stocks to resume their upward trend and reach new highs before the end of the year.
In his notes to clients, Lee pointed out that despite recent fluctuations in US stocks, the VIX Index, which measures panic, remains relatively restrained. Throughout the decline, the VIX Index remained below the key risk appetite turning point 20. Lee believes that if the VIX index falls below 18, it will be a bullish sign that US stock prices will rise again.
Earlier last week, the 4-month and 1-month term structures of VIX futures were inverted, then quickly returned to normal. Lee said that this rapid reversal of the VIX term structure indicates “the market believes that the probability of a highly volatile event occurring in the short term is reduced.” The last time a situation similar to VIX reversed and then returned to normal was in March 2023. The occurrence of this situation marked a partial bottom for US stocks at that time, and then began a year of sharp rise.
Furthermore, the accelerated decline in US stocks over the past week may seem abnormal; in fact, it may mean that investors are nearing the end of the deleveraging process. Lee said that the 5-day decline in the S&P 500 index was 3.6% (last Friday). Since October 2022, there have been seven such declines, five of which immediately formed tradable lows.
The ratio of put options to call options has risen, with a recent reading of 1.13. This high level has often marked tradable lows in the past. Since October 2022, the ratio reached 1.13 seven times, six of which represented the bottom of the stock market.
Lee quoted recent comments from Fundstrat technical strategist Mark Newton (Mark Newton), who believes that a bottom in the stock market may appear early this week. His bullish reasons include that the weakness of technology stocks did not disrupt their upward trend compared to the S&P 500 index, that defensive sectors such as consumer goods and real estate investment trusts (REITs) did not perform well, and that the overall market breadth remained relatively good.
editor/tolk