Fundstrat's Mark Newton: Evidence of Equities Making a Bottom

Market Damage and Bottoming Process

• 📉 Significant damage has been done to equity markets over the last seven to eight weeks.
• 💡 However, equities have pulled back to an important area, showing evidence of volume dispersion and washed-out breadth.
• 🎯 This suggests that markets may have made a bottom or are in a bottoming process.

Future Market Performance

• 🎢 The path forward is expected to be an L-shaped market performance, characterized by volatility for the next 30 to 60 days.
• ➡️ This means a two steps forward, one step back approach rather than a straight upward trajectory.
• 🗓️ Markets may go sideways for another one to two months before a larger rally can begin.

Encouraging Technical Signals

• 📈 Technology stocks, particularly the Mag 7, have shown stabilization and significant moves off their lows.
• 🏦 Encouraging bank earnings this morning provide positive signals for the financial sector, defying pessimistic expectations.
• 🌍 The narrative of money moving abroad appears ill-timed, as the US has outperformed Europe and Asia recently.

Bond Market and Interest Rates

• 📉 A significant unwind in the equity market was accompanied by a dislocation in the bond market, with one of the fastest rises in long rates in nearly 40 years.
• 📊 This rapid steepening of the yield curve is not expected to be persistent.
• 📉 Rates are anticipated to start coming down in the months ahead.

Investor Sentiment and Capitulation

• 😨 Sentiment has been bearish for some time, potentially turning into capitulation earlier this week.
• 📈 Traditional retail gauges, like fear and greed, reached near two-decade highs.
• ⚠️ Extreme downside volume and a high ARMS index, coupled with a strong upside to downside ratio in the advance-decline line, suggest a potential market low is being formed.