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 The S&P 500 <.SPX> is down about 13 percent from its record high in
May, as oil remains mired below $30 a barrel, while concerns about
stability among banks and uncertainty about the U.S. Federal
Reserve's path of rate hikes have pushed investors away from risk
assets.
But recent trading action on an intraday basis suggests investors
may be starting to warm up to stocks again. In three of the last
four losing sessions, late-day buying took over in
a pattern that had begun to emerge at the end of January.
Jack Ablin, chief investment officer at BMO Private Bank in Chicago,
views that as a positive sign. He pointed out in a recent note to
clients that the so-called Smart Money Index, which compares trading
action at the beginning and end of day trading, appears to have
bottomed on January 12.
The rationale behind the index is that professionals tend to
dominate activity later in the trading session, and buying in the
latter stages is a positive signal.
"My suspicion is that you are seeing institutions nibble at
extremely compressed valuations," said Peter Kenny, equity market
strategist at Kenny & Co LLC in Denver.
"The bottom line is, if you are ending the session with a positive
trend, that tends to give the impression that there are buyers out
there."
However, while late-day buying may be a good sign, it also could be
preventing selling pressure from being exhausted - the so-called
"capitulation" that some market watchers are waiting for before they
race in to buy. Even Ablin, who sees the bright side, says shares
have to fall another five to ten percent before they are fairly
valued.
Another contrarian indicator released this week that could bode well
for stocks is the AAII investor sentiment survey, which showed 48.7
percent of investors were bearish, near a three-year high.
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Bill Stone, chief investment strategist at PNC Wealth Management in
Philadelphia noted the severely bearish sentiment and said in a note
to clients, "while this might seem counter-intuitive, high amounts
of negative sentiment versus positive sentiment often are a prelude
to a move higher in stocks."
Earnings also will remain in play next week, with names such as
Priceline.com <PCLN.O> and Wal-Mart <WMT.N> providing insight into
the health of the consumer after a positive retail sales report on
Friday.
Investors will also get data next week on regional manufacturing in
the Northeast and Mid-Atlantic regions, which has been weak, as well
as inflation data and the minutes from the most recent Fed meeting.
"If the U.S. economic landscape remains non-recessionary, if we
continue to see gains in several of the major data points that have
provided for a fairly constructive, maybe not equity market, but
economic narrative, then we see some traction," said Kenny.
(Reporting by Chuck Mikolajczak; editing by Linda Stern and Nick
Zieminski)
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