There are three signs in the market pointing to even more selling going forward, MKM says

Don’t expect the market sell-off to let up yet, according to MKM Partners’ JC O’Hara. The S & P 500 has fallen more than 17% in 2022 and is riding a seven-week losing streak — its longest since 2001. The Dow Jones Industrial Average , meanwhile, posted its longest weekly losing streak since 1923 — falling for an eighth straight week. The 30-stock average is down 13% year to date. On Friday, though, the major averages staged sharp recoveries after the S & P 500 briefly dipped into bear market territory — down 20% from a record high set in November. Wall Street tried to build on that momentum Monday, with the Dow and S & P 500 rising slightly. However, O’Hara said in a note Sunday night there are three signs that point to further selling, including the lack of a “capitulation moment.” “While there are lows made on low volatility, we are closely watching for signs of severe stress in the system, which should be captured and signaled by the VIX in a move above 40. The volatility gauge has averaged 25 year to date,” the firm’s chief market technician wrote. He also noted the selling thus far has been “orderly” — another sign that more losses could come. “Until there are some signs of a real flush, managers will continue to be patient,” O’Hara said. “We are waiting for a washout in breadth followed by a bullish thrust to the upside in Advancing to Declining stocks before any action.” Lastly, O’Hara pointed out that volume has been relatively weak despite the amount of selling that has taken place. “We see no signal that would suggest a turning point,” he said. Bottom line : Friday’s trading action and Monday’s early gains could point to a short-term bounce after the market’s steep declines, but it’s most likely not the bottom everyone is looking for.

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