BOJ "put' brings spotlight on V or W recovery after market selloff
Main U.S. indexes advance; Nasdaq out front, up ~1.1%
Energy leads S&P 500 sector gainers; Healthcare sole loser
Euro STOXX 600 index up ~1.5%
Dollar, gold up; crude up >3%; bitcoin down ~1%
U.S. 10-Year Treasury yield rises to ~3.95%
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BOJ "PUT' BRINGS SPOTLIGHT ON V OR W RECOVERY AFTER MARKET SELLOFF
The Bank of Japan's so called "put" has reverberated throughout global markets, sparking a recovery across the globe. But the question facing investors these days is whether the market will see a V or W recovery. A V recovery suggests that the market indexes will not re-test the lows, while a W scenario means the opposite.
The BOJ "put", much like the Fed's version, refers to a belief among investors that the Japanese central bank will step in to bolster free-falling markets, either by holding off on rate hikes if it is in a tightening cycle, or intervening directly.
Michael Purves, chief executive officer, at Tallbacken Capital Advisors, believes that the U.S. stock market will not retest the intraday low on the S&P 500.
"Normally, we like to see a retest of the lows to affirm that a rally can actually get traction and not lead the way to a sucker rally," writes Purves in a research note.
"However, it's notable that during the COVID sell off in March 2020, the SPX did NOT retest the lows, and investors who were slow to respond missed out on a great year: the SPX finished 2020 up 16%, even with the shock and awe of COVID."
Since COVID, Purves notes that the market has seen other V-shaped rallies as well, and some "grinding bottoms". He adds that if there is too much leverage in the system, which may be the current case, these V bounces may in fact be a "more obvious path for markets to take than the classic W where we get a retest."
For now, Purves says he's focused on the S&P level of 5,240, Tuesday's close. This not only marks the break-out from the dip in late May, but it also coincides with a key Fibonacci retracement.
"If we close above this level today, this might mean the near term floor is more this level, and NOT the recent lows."
(Gertrude Chavez-Dreyfuss)
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FOR WEDNESDAY'S EARLIER LIVE MARKETS POSTS:
WALL STREET GAINS FOR 2ND DAY WITH A LITTLE BOJ ASSIST - CLICK HERE
HSBC WEALTH PICKS HEDGE FUNDS AS VOLATILITY RISES - CLICK HERE
S&P 500 INDEX: TIME FOR ANOTHER TURN? - CLICK HERE
WHAT HAS CHANGED AFTER THE MARKET MAYHEM? - CLICK HERE
ANOTHER TECH BUYER COMES INTO THE OPEN - CLICK HERE
A NEW LOW BEFORE A PROPER RECOVERY, JUST LIKE IN 2018? - CLICK HERE
BANKS LEAD GAINS IN EUROPE, HEALTHCARE DRAGS - CLICK HERE
GREEN SHOOTS FOR STOCKS - CLICK HERE
BOJ SAVES THE DAY - CLICK HERE
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