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Dow Jones Industrials' Massive One Day Drop Of 4.6 Percent Rattles Markets Overseas
Stocks could get a short-term boost as fear of missing out on gains leads more investors to plow more money into the U.S. equity market, analysts said.
The S&P 500 posted its seventh weekly gain in eight last week, rising more than 2 percent in that time period. The surge in stocks comes as investors increasingly bet China and the U.S. will strike a trade deal in the near future. It also follows the Federal Reserve signaling it will be patient in tightening monetary policy moving forward.
"It seems a 'panic buying' mood, with purchases by investors who had been lagging the broader market, has strengthened," Masanari Takada, a cross-asset strategist at Nomura, said in a note Monday. "Systematic trend followers that had temporarily suspended buying after the weak US retail sales print have also been compelled to follow the market by adding fresh longs."
"We believe as a short-term trading strategy of buying on dips from end-February to beginning-March targeting a subsequent return-reversal is attractive." Takada wrote.
This surge comes after a massive sell-off in December that briefly sent the S&P 500 into bear-market territory on an intraday basis.
The recent move up propelled the S&P 500 above its 200-day moving average, a technical level closely watched by investors. Usually, when a stock or an index breaks above its 200-day moving average, it signals strong upside momentum moving forward.
"At this juncture, the SPX has successfully recaptured the 200-day MA after reversing a downtrend off the October highs," said Craig Johnson, chief market technician at PiperJaffray, in a note. "Further upside from here leaves the 2,800-2,815 range as the next major hurdle for the index to clear."
The S&P 500 has not closed above 2,800 since Nov. 8 and is currently 0.9 percent from reaching that level. On Friday, the S&P 500 closed at 2,775.60.
"Although the recent price action of S&P500 has been too volatile to grasp and exact trend, it has returned to the point where these investors are targeting ~2800 again," Nomura's Takada said.
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