Stocks plunge may have been a too fearful reaction to trade, economic worries

After sharp gains in the past week amid hopes for a trade deal, stocks fell back into correction mode Tuesday, plunging on worries the trade talks could fail and that global growth is slowing.

Vinay Pande, head of trading strategies at UBS Global Wealth Management’s Chief Investment Office, said recessions often do follow inversions but there is no consistent pattern. “It’s between 50 to 600 days to an equity market top, going back to the 1980s. This is not a very useful thing,” he said.

Traders have been pointing to the speed at which the 10-year fell from above 3 percent to the 2.87 percent it was on Tuesday. Pande said part of the reason was that there was a large short position, and investors were forced to cover shorts, as well as some weak data points and inflation reports.

“We actually like the equity market here. I think the market has priced in a reasonably bad outcome,” said Pande. Barring a failure of China and the U.S. to find a trade agreement, he said the market should be alright.
“Near term we think you should be buying the dips,” he said.

Ari Wald, technical analyst at Oppenheimer, said Tuesday’s selling was more of the same pullback that roiled the market in October and November, after its reprieve.

“The market is oscillating in that type of range bound manner. I think it’s all suggestive of the same action we’ve really seen in recent months. This bottoming formation that’s trying to take place. The S&P is still below key resistance at 2,815 sot he bottoming continues,” he said.

Redler said the bottom of the range is 2,603 which the S&P hit in October. “The market is in a range. It’s trying to figure out what the bigger picture looks like, while traders navigate the technical points. A contributing factor was that traders got caught in Apple” Monday when it traded higher. “It looked like it had relative strength, but then the Cirrus news came out and it got downgraded. It’s another worm in the Apple.”

Cirrus cut its guidance due to weakness in the smart phone market.

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