The Dow, broader S&P 500 ($INX) and tech-heavy Nasdaq Composite ($COMPX) are all now down a good 5% on the year and haven't really gone anywhere in six months, but if there's a bright side to the relentless sell-off, it's that an overvalued, overbought market just got undervalued and oversold in a big hurry.
"We welcome the move in the markets for everything from the Canadian dollar, to credit, to commodities, to equities back towards fair-value -- and also look forward to taking advantage of it, especially as the liquidation continues," David Rosenberg, the bearish chief economist and strategist at Gluskin Sheff, told clients Tuesday morning.
That's not to say it's time to go stock shopping just yet. As Maier Tarlow, senior managing director at Raven Securities, told DailyFinance, investors would be foolish to try and catch a falling knife. The market is at the mercy of technical forces. Until buyers come back with sustained conviction, there's no point in fighting the tape, no matter how cheap stocks look on a forward earnings basis. (And they do look cheap: The forward price/earnings multiple on the S&P 500 hasn't been this low since the March 2009 bottom of the bear market.)
"We need two solid up-days in a row (a follow-through after a big bounce is vital) with some major volume attached to show participation," Rosenberg wrote. "This may be technical turnaround talk, but bottoms and tops in the market are typically technical events, as history suggests. Our advice is to be patient and disciplined and let the market do the talking."
Jeffrey Kleintop, chief market strategist at LPL Financial, notes that the stock market is technically oversold by even more than it was overbought in mid-April when it was pretty clearly due for a pullback. That suggests that selling may soon stall and buyers, attracted by deeply discounted share prices, will venture back. But, alas, it could take a good, long while, by Kleintop's reckoning.
"We still believe that while the next week or two could be up or down a little, four or six weeks from now stocks will be up and headed back near the highs of April," Kleintop wrote.