The ‘godfather’ of technical analysis says the stock market could drop 20% or more, but don’t panic: ‘This market has been really, really amazing’ for 18 months

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Prominent market technician Ralph Acampora said the recent bout of market volatility made him uneasy and he now foresees a deeper decline in a market that has already caused significant bruising on Wall Street in the first weeks of 2022.

“I really didn’t like the action yesterday. That wasn’t cool,” Acampora said in an interview with MarketWatch Friday morning from his Minnesota residence, referring to an intraday reversal on Thursday — when the Nasdaq Composite Index COMP,
-1.41%
rose 2.1% at its peak to end down 1.3%. It was the second such reversal for the Nasdaq, and the folks at Bespoke Investment Group said Thursday’s pullback marked the first time the Nasdaq Composite erased “a 1%+ intraday gain and closed down 1%. %+ on consecutive days in over 20 years.

“It’s not climate activity, it’s an inversion pattern,” Acampora said.

Acampora, who began his career on Wall Street in 1967, said the recent declines are bearish for the outlook for stocks.

“I’ve been through too many bear markets,” he said over the phone, noting that the long bull run in stocks, which was mostly fueled by the Federal Reserve’s easy money policies to fight COVID , could come to its conclusion .

“If we’re honest with ourselves, this market has really, really done some amazing things over the last year and a half,” Acampora said.

To verify: The Nasdaq Composite just recorded its 66th correction since 1971. Here’s what history says is happening next to the stock market.

Markets have been choppy since November and fears over a Federal Reserve that will be aggressive in its ongoing battle against rising inflation – stemming from supply chain bottlenecks and rising demand as COVID fears take precedence over consumerism – appeared to peak on Wednesday with the Nasdaq Composite entering a correction for the first time since March and moving below a long-term trendline, its 200-day moving average for the first time in nearly two years, a few days apart.

Many Chartists affectionately refer to Acampora as the “godfather of technical analysis.

A pioneer in the field of price chart-based trading, Acampora says he mostly advised his clients to be cautious.

He told MarketWatch on Friday that his own sentiment had shifted toward equities: “If you had spoken to me on Tuesday, I would have said the market was going to correct [a decline of at least 10%] and I’m now talking 20% ​​or more,” he said of his expectations for stock index declines.

What has changed for Acampora besides the unsavory intraday action?

He says signs that the bullish appetite is waning are one of the reasons, and that includes bitcoin’s decline in BTCUSD,
-7.41%,
which he says isn’t an asset he’s a fan of, but sees it as a good sign of investor sentiment. He says bitcoin sentiment has also aligned with technology, suggesting these assets are moving more in tandem.

“Nasdaq is collapsing…tech is going to pull us down, and bitcoin below $40,000 is a significant break in sentiment,” Acampora said.

The market tech also said he looked at a number of components from the Dow Jones Industrial Average DJIA,
-0.62%,
including American Express AXP,
-0.96%,
Goldman Sachs Group Inc.GS,
-0.59%,
JPMorgan Chase & Co. JPM,
-1.48%,
and Honeywell International HON,
-1.16%
and spotted negative weekly chart patterns.

“So I’m a little worried,” he said. “Now we’re talking about a bear phase,” he said.

That said, the analyst said investors shouldn’t feel too sorry for themselves.

“Come on,” he said. “We had a phenomenal market. Every other day you were looking for historic highs.

In this new regime, however, Acampora said he does not expect near-term records. “I just don’t see new highs anytime soon.”

What should investors be looking for to determine when to enter the market with more enthusiasm? Acampora said it would look for the CBOE VIX volatility index,
+7.07%,
also known as VIX, for its ticker symbol, going up to 38 or 40 before the market can be said to be bottoming. The VIX itself, which uses the S&P 500 SPX,
-1.01%
options to gauge traders’ expectations for volatility over the coming 30-day period, tends to rise as stocks fall and is therefore often taken as a guide to investors’ level of fear. Its historical average fluctuates between 19 and 20 and it was trading around 27 on Friday, up 40% over the week.

One of Acampora’s other concerns is that the economy faces stagflation, a period of rising rates and rising inflation. Stagflation can cause real incomes to stagnate or decline and erode purchasing power. Such a scenario could curb the upward trend of the market for several years.

This image shows Acampora’s latest update to its barn chart, reflecting movements in the Dow through June 2021.

Ralph Acampora

He would advise investors to wait for a bottoming pattern, a market process setting up higher lows and higher highs, before viewing the downturn as a buying opportunity.

Read: ‘Good luck! We’ll all need it’: US market nears end of ‘superbubble’, says Jeremy Grantham

All the wild moves in the markets lately will make fodder for Acampora, who paints a massive Dow chart on the side of his Minnesota barn, which it continues to update. The octogenarian also said he now plans to write a book on the history of financial markets, which would provide context and ideas for those who may be new to markets and economics.

“Other men like to pick up trash, I like to collect history,” he said.

Read:Why 2022 appears to be “a perfect negative storm” for tech stocks, according to Deutsche Bank

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