No Rally Safe in S&P 500 as Traders Forget About Buying the Dip
2016-01-20 05:00:01.2 GMT

By Oliver Renick and Dani Burger
(Bloomberg) — If it feels like rallies in U.S. stocks are getting shakier in 2016, they are.
Case in point was Tuesday, when a 183-point gain in the Dow Jones Industrial Average evaporated and the gauge slid as much as 87 points before ending 28 points higher. In the 11 trading sessions since New Year’s, the Standard & Poor’s 500 Index has fallen an average of 1.3 percent from its intraday high, more than double the decline last year.
Nerves are weakening in a market where everything from China to oil and the Federal Reserve are proving capable of knocking stocks down at any time, day or night. It’s a reversal of the optimism that underpinned the last three years of the bull market, when traders viewed bad news as transitory and used declines as opportunities to buy the dip.
“I looked over at one of my traders and said, ‘why does the chart look the same every day — starts up, ends down,”’ Thomas Garcia, head of equity trading at Thornburg Investment Management Inc. in Santa Fe, New Mexico. “The market is just having a hard time finding the bottom. That’s not a good sign.”
More than $2 trillion has been erased from American share prices this year and the S&P 500 has fallen 8 percent for its worst start to a year on record. Investors are finding no respite from volatility that has pushed the benchmark gauge down almost 12 percent from its May record amid the worst selling since August.
The average daily drop from the S&P 500’s intraday highs in
2016 compares with a 0.55 percent retreat throughout the bull market, according to data compiled by Bloomberg. Apart from a stretch from Aug. 25 to Sept. 9, it’s the biggest average decline for any two-week period since 2011.
That’s a challenge to bulls in the stock market, where downward swings have become larger than the gains that materialize when equities reach lows for the day. The average move up from each day’s trough is 0.89 percent so far in 2016, the data show.
The tenuousness of rallies was seldom more apparent than last Wednesday, when the S&P 500 jumped out to a 0.6 percent advance in the first 10 minutes of trading. By noon it was over and by around 2:30 p.m. in New York stocks had lost 2.7 percent
— the second-biggest peak-to-trough reversal in four years.
“A lot of investors are very nervous and are acting on any strength to lighten their exposure,” Alan Gayle, a senior strategist for Atlanta-based Ridgeworth Investments, said by phone. “There’s skepticism about China’s economic strength and continued concern about excess oil supply. It’s weighing on the markets and not letting up.”
The year has also begun with an average intraday swing in the S&P 500 of 40.8 points. That compares to 22.6 points last year and 16.5 in 2014. The Chicago Board Options Exchange Volatility Index, the measure of market turbulence, closed at
26.05 on Tuesday, roughly double the July low.
Oil’s failure to sustain a rally has damped attempts by U.S. stocks to rebound from August, as investors take morning rallies as a chance to reduce risk. On Friday, crude tumbled below $30 a barrel to its cheapest in 12 years. Add to that anxiety over China and it’s clear why few rallies are proving safe.
“I don’t have many expectations for material gains anywhere in the near-term because of oil prices and the fear that comes with an investor mentality of selling into the rally,” David Spika, global investment strategist for GuideStone Capital Management, said by phone. “You’ll have to live with volatility.
It’s the fact of the environment we’re in.” 

–With assistance from Joseph Ciolli.

To contact the reporters on this story:
Oliver Renick in New York at orenick2@bloomberg.net; Dani Burger in New York at dburger7@bloomberg.net To contact the editors responsible for this story:
Jeremy Herron at jherron8@bloomberg.net
John Shipman

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