The major stock market indexes posted their largest one-day
drops in four months Friday asGeneral Electric 's (
) andMicrosoft 's (
) earnings misses renewed concerns about corporate profits. But
notable analysts contend the market is on the verge of a
SPDR S&P 500
) plunged 1.79% to 143.17, just below its 50-day moving
PowerShares QQQ (
), tracking the 100 largest nonfinancial stocks on the Nasdaq,
dropped 2.6% to 65.56. It fell further below its 50-day line,
which is bearish.
SPDR Dow Jones Industrial Average (
) skidded 1.8% to 132.98, also landing just below its 50-day
The panic in technology stocks, such as withGoogle (GOOG), the
past week marked a turning point in the stock market, says Mark
Arbeter, chief technical strategist at S&P Capital IQ.
"Panics during bull markets, while very scary, force the weak
hands to sell, creating opportunity for those looking to increase
equity exposure," he wrote in his weekly report.
The American Association of Individual Investor survey shows
bullish sentiment has dropped to 28.7%, while bearish sentiment
has jumped to 44.6%.
"This poll is now almost as bearish as it was in July, when
the market was just emerging from the pullback earlier in the
year," Arbeter noted. "These readings are especially noteworthy
as the S&P 500 is only a couple of percent from its recent
recovery high. From an intermediate- to longer-term perspective,
we think these readings just don't jive with a major market top.
The majority are bullish at tops and bearish at bottoms."
The consolidation in stocks has run its course, Credit Suisse
wrote in a client note today.
"The market is no longer as overbought, with 72% of NYSE
stocks now trading above their 10-week moving averages (a much
more reasonable level), having been as a high as 84% by
mid-September," Credit Suisse wrote.
Investor appetite for stocks remains low, while overall risk
appetite for all asset classes have risen to average levels,
which usually signals a rotation into cyclical investments,
Credit Suisse added. And U.S. earnings guidance has improved.
"This tends to lead earnings momentum," it said. "Q3 U.S.
earnings growth is forecast to be negative for the first time
since 2009 at -1.4%. But Q4 is forecast to pick up to 13.1% year
The major indexes will bounce another 10% from current levels
before rolling over early next year, said Harry Dent, founder of
HS Dent, an economic research and forecasting firm in Tampa, Fla.
The author of "The Great Crash Ahead" and editor of the "Boom
& Bust newsletter" believes the Federal Reserve's third round
of quantitative easing, or QE3, to boost the economy will run out
of steam soon because baby boomers aren't spending as much money
as they save for retirement.
"You can't stimulate the economy when the baby boomers are not
spending anymore," Dent said. "We've been stimulating and
stimulating. Each stimulus has less impact like a drug. It's not
going to last past next year. Earnings are decelerating and
that's going to hit the stock market."
In his most recent client report, Dent warned: "The smart
money is not reacting to QE3 with bullishness, or lower put/call
readings. That tells you the end is likely near as the dumb money
continues to pile in on hope for the Fed to save an ever-failing
Dent added: "Most investors assume that the economy and stocks
can't fail as long as the Fed and central banks keep stimulating.
Japan has proved that is not the case over the last two decades
of its wildly gyrating stock markets and economy with endless QE
"Artificial monetary injections into an economy ultimately
will fail, but will be followed by further stimulus after a next
recession sets in. Stimulus fails because it doesn't address the
root problem of excessive debt and slower demographic spending
trends and it takes more and more stimulus until its side
effects, like growing stock bubbles and imbalances, reverse and
the economy deleverages to a degree again.
"Such deleveraging allows space for more, ill-advised stimulus
to work again until it fails in less time than the last. We
forecast that the next deeper recession and stock crash will
occur between very late 2012 to early 2013 and late 2014 to early
2015, followed by a global rally into 2017 or so, and a then
less-severe final recession and crash in 2020-2022.
"Welcome to the roller coaster stock market of the 2010s
propelled even more by the new 'denial-based' Keynesian economic
IShares MSCI EAFE Index (EFA), tracking developed foreign
markets, fell 1.5% to 54.02%. It's still trading above its 50-day
average, which is bullish.
IShares MSCI Emerging Markets Index (EEM) slipped 1.80% to
41.41. It's also holding above its 50-day line.
Follow Trang Ho on Twitter