One of Wall Street’s most famous proverbs of this bull market is backfiring.
S&P 500, Nasdaq and Russell 2000 have definitively broken their 200-day moving averages, which Wilson said is a sign that the technical damage is “irrefutable” and very different than the brief correction in February.
“Historically, when the 200-day moving average turns down it typically takes months, if not longer, to turn up again,” Wilson said. “This argues for patience rather than haste from investors and to consider selling rallies rather than buying dips.”
The risk going forward will be concentrated in higher multiple stocks that “do not deserve a valuation premium but have simply benefited from a crowding effect,” Wilson said.
He pointed to Nvidia’s price action last week as an example of that remaining risk. The stock got hammered Friday after missing Wall Street’s expectations for revenue and guidance in its third-quarter 2019 earnings report.
More than 40 percent of the stocks in the S&P 500 are down at least 20 percent, Wilson pointed out. Stocks were under pressure on Monday with major technology stocks like Apple and Amazon leading the decline.
Despite some hopes of it last week, Wilson is not expecting the Fed to “bail out equity market participants.” He pointed to a trade deal between the U.S. and China at the upcoming G-20 meeting that remains “highly uncertain.”