After opening lower on Monday, did the U.S. stock market recover?

After yesterday's sharp drop, the US stock market has reached a critical turning point. Has the worst selling period passed?

At the same time, given the recent trend of technology stocks in the past few months, investors are facing a dilemma: whether to spend a high price to buy shares of high-tech giants with high P/E ratios, or to wait for a cheaper entry point but risk missing out on the biggest bull market of the year.

Dan Wantrobski, Technical Strategist and Deputy Director of Research at Janney Montgomery Scott, said:

The market is currently oversold to a certain extent, and stock prices may rebound quickly, but the pain is not over yet. Before stock prices return to historical highs, there are still many key indicators to overcome.

As for technology stocks, although this sell-off has led to a comprehensive decline in valuations, they are far from reaching cheap levels.

Have the six major indicators shown that the US stock market has adjusted?

The current US stock market is at a critical technical position, with multiple indicators suggesting that the market may be approaching a short-term bottom, but the overall trend still leans towards a downward direction.

1. S&P 500 Index

   • Short-term outlook: Short-term rebound may rise to above the 100-day moving average (around 5300 points);

   • Medium-term risk: Medium-term may retest near the 200-day moving average (around 5000 points);

   • Key support: Using Fibonacci retracement analysis, the 38.2% retracement level is at 4838 points, which is an important technical support level;

   • It is worth noting that the index traded more than 15% above the 200-day moving average at the end of July, a situation that historically often indicates a pullback.

2. Nasdaq 100 Index

   • Key breakthrough: Briefly fell below the 200-day moving average on Monday (17657 points), the first time since March last year;

   • Current position: Closed at 17895 points, with the 200-day average becoming an important support level in the near term.

3. Relative Strength Index (RSI)
   • The 14-day RSI of the S&P 500 and Nasdaq 100 are both close to 30, which is considered oversold when below 30, often accompanied by a short-term rebound.
4. Arms Index (TRIN)
   • Closed at 1.02 on Monday, with readings below 0.5 indicating strong buying pressure and above 2.0 indicating selling pressure dominance. A reading of 1.02 shows that there is still some selling pressure in the market and it has not reached an extreme oversold state.
5. NYSE Individual Stock Performance

   • Current situation: 45% of stocks are above the 50-day moving average.

   • Market bottom signal: Analyst Todd Sohn believes that this ratio needs to drop to around 20% to confirm the end of the sell-off.

   • Insight: Breadth indicators indicate that the current decline has not yet reached typical market bottom characteristics.

6. VIX Volatility Index
   • Soared to 65.73 at one point on Monday, hitting a new high since March 2020. As long as the US economy avoids a recession, significant volatility in the VIX may bring strong returns

Are tech stocks at rock-bottom prices?

The market is increasingly concerned about the recession in the U.S. economy and the massive investment in artificial intelligence. Tesla and Amazon's financial reports fell short of expectations, the three major indexes fell together, and Berkshire Hathaway significantly reduced its holdings in Apple... The U.S. stock market is shrouded in gloom, with the Nasdaq 100 index plummeting by 5.5%. Some people bought Apple and NVIDIA stocks at significantly discounted prices compared to a few days ago, but many are still waiting for the right opportunity, as they do not believe that the selling has ended.

Although this sell-off has led to a comprehensive decline in valuations, it has not yet reached cheap levels. According to data compiled by the media:

The price-to-earnings ratio of the Nasdaq 100 index is 24 times the expected profit for the next 12 months. Although this number is lower than 28 times a month ago, it is still higher than the 10-year average level of the benchmark index, close to 22 times.

NVIDIA's price-to-earnings ratio is 31 times, while Apple and Microsoft's price-to-earnings ratios are around 29 times.

John Belton, portfolio manager at Gabelli Funds, said:

Valuations are not particularly cheap, but they are still acceptable. Many large tech companies have shown strong growth momentum, expanding profit margins, and profit growth above average levels. They still deserve a fairly healthy price-to-earnings ratio, especially if we enter a more normalized interest rate environment