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Piper Sandler: Despite Chaos in the S&P 500, There's an Order To It

Posted on Friday, March 20th, 2020 by Steve Anderson

Piper Sandler: Despite Chaos in the S&P 500, Theres an Order To It

If anything can be said for the market these days, it's that it's volatile. Wild swings that would have been impossible just a few short years ago are almost everyday occurrences now. Yet even as an element of normalcy starts to return to the market, and the volatility calms down somewhat, there is something like order emerging from the chaos. A recent report from Piper Sandler suggests that that's true even in the S&P 500.

A More Measured Catastrophic Sell-Off

The word came from Piper Sandler's chief market technician, Craig Johnson, who noted that the market appeared to be in something of a frenzy, but a closer look at the underlying data involved says that what's been happening makes perfect sense.

Johnson pointed to the charts, noting that they were providing guidance, and that the massive sell-off has been “technically perfect”. At the time, it suggested a low as far down as the 2,325 to 2,350 range, which would have seen the S&P 500 drop about three percent overall.

Given that the S&P 500 is currently trading at 2,417.84 as of this writing, Johnson's projections of order have turned out to be very close to the mark. Looking at the S&P 500 range for the last five days, meanwhile, shows a lot of volatility, but holding in a range of around 2,550 to 2,290. The individual moves have been erratic—looking at a five-day chart is a lot like looking at a profile photo of a band saw blade that hit a nail at some point—but the fact that it's holding within that range suggests that some market predictability is at least asserting itself.

More Volatility May Be Afoot

The notion that we're out of the woods in terms of panic selling and wild market mood swings is premature at best; we've still got a lot going on in the field. Word out of Quint Tatro at Joule Financial says that fear is still holding strong, and more panic was possible, depending in large part on where investors were on their time horizon.

Those who can wait—particularly the young—are advised to do exactly that, while those who are closing in on retirement are better served by closely considering allocation levels and playing conservatively.

These Woods In Particular Are a Very Big Place

Watching the numbers on the S&P 500 is particularly vital these days, especially with the sheer amount of volatility going on right now. Recent word from Miller Tabak, via its chief market strategist Matt Maley, suggests that if the S&P 500 were to go below 2,350, there could be serious problems to follow.

That's especially disconcerting given that it did go that low back around Wednesday, but that it didn't stay that low for long is a note of hope in the broader scheme of things. It suggests that the current trading range is likely to hold, even if there will be a lot of whipsawing back and forth within that range for a while.

New Developments Suggest Some Causes for Hope

While the volatility in the markets is still enough to put even a strong stomach off its feed, there are some positive signs emerging to suggest we may well recover before too much longer. First, some reports indicate that China is getting back to normal after its leading bout with the coronavirus. While some are skeptical of these reports, anything resembling a return to normalcy on that front will likely prove welcome for investors. The reports of a new treatment for coronavirususing commonly-available medications—especially the combination of antibiotic azithromycin and malaria-fighting drug hydroxycloroquine—should help pull some of the lockdowns out of place and give people some much-needed reassurance about getting jobs back and getting back into the market.

There's still a long way to go when it comes to getting out of this coronavirus mess. With new possibilities shaping up for recovery, though, and a good chunk of the year left to play out—including summer in North America—the potential for actually realizing that recovery shapes up well. Only time will tell, in the end, just how it all comes out, but the news is looking brighter than it did just a few days ago.


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