Where will the shares go from here? This analyst says we could be in a classic “double bottom” model.

The age-old question of when the stock market will bottom out amid rampant volatility may have a new answer: more than once. A classic market “double bottom” describes a pattern in which an index falls, then recovers and then falls back to the same previous level. “We are preparing here for a retest of the June low simply because there are no buyers available in the market right now,” explained Mark Hackett, head of investment research at Nationwide.

Analysts and investors looked back to June as the low set for the bear market decline, but the September lows show that the market recovered prematurely in mid-summer and that the current decline could reach or exceed the lows seen in June. . Technical analysts believe that the market operates according to recognizable and even predictable graphic patterns. The S&P 500 closed below 3,900 on Friday, signaling that the index could dip to the 3,640 range seen in June. While it may appear that this year’s market volatility has been infinite, analysts believe this lowering of the low could position us for a recovery in the coming months. “We will never really know if stock market lows are coming for the year without successfully testing the June lows,” wrote John Lynch, CIO of Comerica wealth management.

Hackett explained that double bottoms have a strong psychological impact on investors and don’t necessarily have to be mathematically correct to function as the conditions under which a market recovery can occur. “There is a self-fulfilling prophecy for a [double bottom]”You won’t see a lot of enthusiasm from investors until you test the June low again,” Hackett said. As investors were expecting more volatility in September, a new low could signal that the market is positioned for a recovery. A double bottom is a sign that the market has absorbed the pain of the economic factors driving the decline and the inflection point is positioned for an upward trajectory. Lynch explained that once a double bottom is established in the range of the 3,640 index, this low “could potentially provide investors with a solid foundation from which to navigate a more positive market trend in the future.”

While the summer saw an encouraging rally for equities, analysts say this was an exception to the overall market trajectory, not a new trend. A range of macroeconomic conditions, including rising interest rates and the Fed’s political response, geopolitical conditions, including Russia’s ongoing invasion of Ukraine, and ongoing destabilization due to the Covid pandemic- 19, have all been internalized in the market. “The August inflation reading provided another reason for the financial market to conclude that the mid-summer rally was indeed bucking the trend, as the measured core for consumer and wholesale prices was worse than expected,” he said. Lynch said.

Despite the fact that inflation and Fed policy have taken the brunt of the market’s September lows, analysts say this is actually part of a seasonal pattern we see each year in the market, which in itself is a sign that the market is still functionally with some degree of normality. A September drop during earnings season means equities are likely to follow a positive seasonal pattern into the winter. “The good news is we’re coming out of that weak period and the fourth quarter is usually the strongest quarter of the year,” Hackett said.

Another factor that could bring some stability to the markets is the upcoming US elections in November. Mid-term elections provide information to companies on what company policy might be, and thus the sense of security is reflected in the market. Historically, the mid-term election years that saw market volatility also saw an average increase of 32% over the next twelve months from market lows.

When will the market hit bottom? “I think while we get through the next two or three weeks where there is a lot going against the market and we get over this volatility in the short term, over the next six months it won’t be very hard to exceed expectations,” explained Hackett. Lynch advises investors to take a long-term view. “Markets can be volatile, but they often prove resilient for patient investors,” Lynch wrote.

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