Predicting a bottom for the U.S. stock market has been a thankless task in recent days, with indicators that typically signal the end of selling pressure yielding little help.
The three major U.S. stock indexes are each down around 40 percent for the year so far. But analysts said the bottom may be a long ways off as fear eclipses technical indicators.
After a precipitous eight-day slide for the broader market through Friday, there remained a growing discord among market technicians and analysts as to whether the market has seen its worst days or not.
In Friday's wildly volatile session, the Dow Jones industrial average swung 1,000 points between its intraday high and low. The Dow briefly dropped below 8,000 for the first time since April 1, 2003, and then rallied over 300 points late in the day -- only to give up those gains and close down 128 points at 8,451.19.
Volume was exceptionally heavy, with 2.95 billion shares changing hands on Friday on the New York Stock Exchange -- the highest NYSE volume ever for a day that doesn't include the quarterly expiration of stock-index futures and options, according to a blog posting by Ray Pellecchia on NYSE Euronext's Web site. In comparison, last year's daily average was 1.90 billion shares.
In one sign of just how unsettled the stock market has become, investors clamored for a coordinated interest-rate cut by the U.S. Federal Reserve and other central banks. But when the central banks gave the market what it wanted, stock investors still were driven by a heightened sense of fear.
Even though selling volume exploded, it is not providing clear-cut signals that the market is near some turning point or that the sellers will soon get exhausted, said Cleveland Rueckert, market analyst at Birinyi Associates Inc in Stamford, Connecticut.
"There's nothing that you can put a finger on and then say this one thing has changed, now you have the bottom," he told Reuters. "People are worried about earnings right now -- the prospect of a deep recession. Nobody wants to own stocks."
The Chicago Board Options Exchange Volatility Index, Wall Street's main barometer of investor fear, is at record highs -- a move that investors have tended to take as affirming the basis for near-term bottoms.
The VIX shot up to an intraday record high at 76.94 on Friday -- a jump of 20.4 percent. The VIX also closed at a record high of 69.95, up 9.4 percent for the day.
RETHINKING BEAR STEARNS
Back in March, when investment bank Bear Stearns succumbed to the credit crisis, the prevailing view, guided by past experience, was that the market had probably seen a cataclysmic event that should mark the beginning of an end to the turmoil.
Indeed, several Wall Street watchers stuck their necks out to say the bottom had been hit then.
That was six months before a tumultuous September that rocked Wall Street and changed the landscape of U.S. finance forever.
This time around, there seems to be a sense that the dynamics of the global credit crisis are making it harder to pin down a likely recovery point, according to traders and analysts.
The New York Stock Exchange's "Bullish Percent Index" is among key broad market indicators that have been traditionally looked at to determine market bottoms.
While its reading currently shows record pessimism, there is hardly a sense that some investors might take it as an invitation to wade back into equities, said Bruce Zaro, chief technical strategist at Delta Global Advisors in Plymouth, Massachusetts.
"This market environment feels very different and certainly the mindset of the country has thought, 'Yes, this is very different because of the circumstance surrounding the credit crisis,'" Zaro said.
LEGACY OF LEHMAN'S BANKRUPTCY
According to the NYSE's "Bullish Percent Index," only 5 percent of NYSE-listed stocks are trading at their technical "buy" signals above their 200-day moving averages -- a record low.
Another metric, whose extreme reading in the past has tended to stir hopes that near-term bottoms are nigh, is the put-call ratio, which spiked above 1.50 on Monday.
A high volume of puts compared to calls indicates bearish market sentiment. With such readings, along with major events that shook the market, analysts expected that there would be hints that a bottom was close.
But the stock market's landslide just kept getting worse.
On Friday, the benchmark S&P 500 wrapped up its worst week on record. For the week, the S&P was down 18.2 percent.
The current downdraft has even led the S&P 500 to blow through a closely watched technical gauge, the Fibonacci retracement. The theory holds that bear markets rarely retrace more than 61.8 percent of the preceding bull market advance.
By Friday, the S&P 500 had given back more than 80 percent of its gains from the bull market that ran from October 2002 through 2007.
The catalysts for the market's latest rout include the Sept. 15th bankruptcy filing by Lehman Brothers, which ranks as the biggest corporate bankruptcy in U.S. history; the U.S. government's $85 billion rescue loan for insurer American International Group; the shotgun wedding of Merrill Lynch to Bank of America and the emergency takeover of Washington Mutual, the nation's largest thrift.
These unprecedented events were followed by even more waves of selling that drove the S&P below its July 15th closing low of 1,214.91, which some had thought would hold.
Before that, some had thought the S&P 500's closing low of 1,276.60 on March 17 -- the Monday after JPMorgan Chase & Co reached a Sunday night deal blessed by the Fed to buy Bear Stearns -- would hold.
It was not meant to be.
Since breaking through the July 15th low, the S&P 500 is now at its lowest since 2003, with its close on Friday just a hair below the 900 level -- at 899.22.
"We certainly do not want to guess again as our 7/15 low did not hold," J.P. Morgan Securities' U.S. equity strategists said in a research note. "We do not get the sense that investors are waiting for a bottom to pounce. Rather, we get the sense investors are more frogs caught in the boil."
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