Another day, another downturn in the final hour of trade.
On Friday, markets were sinking diving deeper into the close, mimicking a similar retreat from intraday gains on Wednesday and Thursday.
On Thursday, a flirtation with a respectable comeback a day after entering correction territory proved short-lived, with the Nasdaq Composite COMP, -2.72% notching another ugly reversal on Thursday.
Thursday’s move appeared to be a head-scratcher for some participants as it seemed likely that the technology-laden Nasdaq Composite might finally finish higher, with momentum buoying the Dow Jones Industrial Average DJIA, -1.30%, and the S&P 500 SPX, -1.89% benchmarks and bargain hunters swooping in.
However, the advance couldn’t hold and the turnabout in the market was pronounced. The finish left the Nasdaq Composite, which was up over 2.1% at its Thursday peak, with its largest reversal from an intraday high since April 7, 2020, Dow Jones Market Data showed.
The Nasdaq Composite closed down around 1.3% on the session, lurching decidedly lower in the final hour of trade.
Frank Cappelleri, executive director and technical analyst at Instinet, told MarketWatch that there is a simple reason why the market is collapsing.
“We’ve shifted from buy the dip, to sell the rip,” he explained, using market slang for a rally.
“Today was a microcosm of what has been happening,” he said, and he cautioned that many areas of the market have still failed to achieve conditions that market technicians describe as oversold, which means that more selling may be in store.
“If we continue to get closes like this, it just tells use that the market isn’t ready to turn higher,” Cappelleri said.
The Instinet analyst said that investors need to look out for a pattern of higher highs and higher lows, wherein we have been in a downtrend marked by lower lows and lower highs. In such an environment, Cappelleri said that it has made sense to sell rallies until the complexion of the market changes.
The equity market has been under siege at least partly because of the prospect of multiple interest-rate increases from the Federal Reserve, which meets Tuesday and Wednesday. Higher rates can have a chilling effect on investments in speculative segments of the market that rely heavily on borrowing, with investors discounting future cash flows. Talk of inflation also has put a damper on the market and is one of the key reasons compelling the Fed to change from a regime of easy-money to one of policy tightening.
Buyers have tried to rotate into sectors that are expected to perform better in the coming year, such as financials and energy, but the rotation has been uneven and marked by bouts of turbulence.
A rapid rise in Treasury yields also has hastened the rotation and helped to stoke further volatility in stocks. The 10-year Treasury TMUBMUSD10Y, 1.762% was mostly placid on Thursday but expectations are for a further rise in short-term and longer-term debt.