The S&P 500 is off to the second-worst start to a year in history, Cameron Dawson, chief market strategist at Fieldpoint Private, pointed out Friday on Benzinga's "PreMarket Prep."
Where Is The Bottom? Dawson told Benzinga relief rallies are expected given the magnitude of the declines in the market, but she said an indiscriminate bottom in which everything can be bought has yet to arrive.
Dawson shared a checklist of items that she watches when trying to discern a market bottom. She uses several indicators that point to oversold momentum, volatility spikes, flights to safety, sentiment collapses and capitulation, among others.
"We'd like to see a little bit more of these [indicators] before we start getting really aggressive," she said.
Investors can start putting money to work on weakness if they are sitting on large cash positions, Dawson said, "but we're not making the call yet to go big huge strategic overweights into equities simply because we haven't seen that kind of flush selling that would be consistent with a really major low."
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What About ARK? A lot of the stocks that are popular among retail investors are down 50% or more, yet margin loans are only down 2% over the last six months, Dawson said.
"That tells you that people aren't capitulating, they're not throwing in the towel and if they're getting margin called, they might be actually adding cash to portfolios instead of taking risk off the table."
Over the course of the 2020 bull run, the total number of shares outstanding for the ARK Innovation ETF (NYSE:ARKK) grew by more than 400%, she said, adding that the outstanding share count has only fallen 13% during the 60% drawdown in the ARK Innovation ETF over the last year.
"Which tells you that there's zero capitulation here," Dawson said. "People aren't selling and they actually have been buying over the last couple of weeks."
The market won't reach lows while investors are holding on. It's when people run for the exits and seek protection that markets find a bottom, she said.
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International Markets: Dawson believes the international markets are much closer to a bottom. She highlighted BofA data showing "massive outflows" mostly in European equities.
"When you see huge outflows and you actually have very, I think, multi-decade lows in relative valuation, we could be getting close," Dawson said.
Yet investors want to look for some sort of sign that relative performance is turning around, she said: "Until then it's a value trap compared to the U.S."
Watch the full interview with Cameron Dawson in the clip below.
PreMarket Prep is a daily trading show hosted by prop trader Dennis Dick and former floor trader Joel Elconin. You can watch PreMarket Prep live every day from 8-9 a.m. ET Benzinga's YouTube channel, and the podcast is on iTunes, Stitcher and Tunein.
Photo: Billie Grace Ward from Flickr.
