It has been a tough year so far for the U.S. stock market, with major indices like the S&P 500, Dow and Nasdaq all declining since the beginning of 2022 after delivering strong gains in 2021. At least one market expert thinks things could get a lot worse.
Ralph Acampora, a long-time market technician known as the “godfather” of technical analysis, told MarketWatch last week that the stock market could lose at least one-fifth of its value this year based on recent volatility.
“If you had spoken to me on Tuesday I would have said that the market is going to correct [a decline of at least 10%] and I’m now talking 20% or more,” Acampora said in an interview published Friday.
One of his main worries is the performance of the Nasdaq Composite, which recently entered a correction for the first time since March and crossed below its 200-day moving average for the first time in nearly two years, MarketWatch reported.
Acampora, an early adopter of trading based on price charts, has advised his clients to proceed with caution. That’s partly because the stock market is due for a correction following an extended bull run, helped by beneficial COVID-era Federal Reserve policies that are due to end this year as the central bank tries to tame inflation and return to something resembling normal.
“I’ve lived through too many bear markets,” Acampora said during the interview. “If we’re honest with ourselves, this market really, really did unbelievable things in the last year and a half.”
Last week was particularly ominous, with stocks having their worst week since the beginning of the COVID-19 pandemic, Bloomberg reported. The S&P 500 closed below its 200-day moving average for the first time since 2020, while the tech-heavy Nasdaq 100 took a hard dive at the end of the week as Netflix shares fell by more than 20%. Meanwhile, Bitcoin briefly dipped below $38,000 to its lowest level in more than five months.
“The Nasdaq’s breaking down…technology is going to pull us down, and Bitcoin below $40,000 is a significant breakdown for sentiment,” Acampora said. “So, I am a little concerned. Now we’re talking a bear phase.”
While he says investors should be cautious over the near term, he also offered advice on when to get back in: Keep an eye on the CBOE Volatility Index, or VIX. When it rises to 38 or 40, that’s a sign that the market could be bottoming. The VIX’s historical average ranges between 19 and 20 but had risen to just over 30 early Monday, Jan. 24.
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