Gina MartinBloombergOctober 17,2022

S&P 500 Capitulation Signals Have Emerged, Hinting at BottomContributing Analysts Gillian Wolff (Strategy)(Bloomberg Intelligence) — A short-term sentiment washout occurred with the recent rout in stocks, as breadth and momentum signals are joined by correlation and options positioning to build a body of evidence that a longer-term low may be in the process of forming. Though VIX isn’t above 40, it nonetheless appears to be confirming recession pricing. A fifth of S&P 500 stocks are trading below 10x forward PE. (09/27/22)1. New Highs and Lows Hitting Extremes in S&P 500Return to TopThe S&P 500’s autumn retest of 2022’s lows has caused an extreme washout in breadth, the likes of which are typically associated with at least a near-term bounce in equities. As of the close on Sept. 23, no stocks were making new four-week highs — the fourth time this metric has bottomed out in the last month. In fact, the last time the percentage of stocks making a new four-week high was close to 0% was mid-June, right before the summer rally.Likewise, the percentage of stocks making new four-week lows hit 85.5%, surpassing even the reading at June’s lows and registering the largest percentage since the 2020 bottom. The last two times a larger proportion of stocks made new monthly lows marked major market bottoms in both March 2020 and December 2018. (09/27/22)% of S&P 500 with New Four-Week Highs and Lows

Source: Bloomberg IntelligenceDataChart2. Breadth and Momentum Signal an Emerging LowReturn to TopMomentum and Breadth Signaling Low

Source: Bloomberg IntelligenceDataChartS&P 500 breadth, measured as the percentage of stocks trading below their 50-day moving average, has dipped below 5%, indicating that enough of a sentiment washout has occurred to suggest a low may be in the process of forming for the index at large. Momentum has also confirmed an oversold condition, as 14-day RSI has fallen below 30. Market corrections in 2011, 2018 and 2020 all ended with both breadth and momentum indicators extremely oversold — the percentage of stocks below their 50-day moving average dipped below 2% and 14-day RSI below 20 in all instances.The correction in 2015-16 was something of an outlier, with momentum and breadth sending capitulation signs in 2015, but price failing to make a final low until early 2016 on momentum and breadth divergence. (09/27/22)3. Put/Call Ratio Nears a Key Level for Market BottomReturn to TopContributing Analysts Gillian Wolff (Strategy)Read Research Note: BI Equity Strategy: The Week in Charts, June 16CBOE Put/Call Ratio Has Surged This Year

Source: Bloomberg IntelligenceDataChartThe Chicago Board Options Exchange put/call ratio has surged to a new year-to-date high in recent days, and is near a level that’s historically accompanied major bottoms in stocks. In each major correction since 2011, the 20-day moving average of the series has jumped over 0.75 by the time equity markets bottom. The moving average is now near 0.74, surging even above the level of stocks’ mid-June low.Outside of the March 2020 Covid-19-driven selloff, the 20-day rolling average is in the top 3% of values since 2016, exceeded only briefly late in the summer of 2019 and the end of 2018. The pre-pandemic long-term average level of the 20-day moving average is 0.64, with the current one 1.8 standard deviations higher. (09/27/22)4. Correlations Now Signaling a Bottom in PlayReturn to TopRead Research Note: BI Equity Strategy: The Week in Charts, May 19Average S&P 500 Pairwise Correlation (Trailing 6M)

Source: Bloomberg IntelligenceDataChartPairwise correlations in the S&P 500 have surged over a full standard deviation above average, now sitting just above levels associated with the December 2018 market crash, and indicating a bottom is likely in the process of forming in the index. The trailing six-month average pairwise correlation is 0.53 vs. the full sample average of 0.28. Four months after stocks peaked in the 2011, 2015 and 2018 corrections, this measure averaged 0.34. In each case, correlations spiked to levels more than 0.5 standard deviations above average after a bottom had already occurred.Correlations usually jump as market distress emerges and reach well above average when stocks reach a trough. They are now near record high levels, exceeded only by periods of significant market distress like in 2020 and 2009. (09/27/22)5. VIX High Streak Reminiscent of Recessions PastReturn to TopRead Research Note: US Equity Signals: July 2022VIX Streak Above 20 Longest Since Recession

Source: Bloomberg IntelligenceThe VIX has stubbornly failed to spike above 40 — a level consistent with past periods when lows were forming for stocks — yet its high average over an extended span confirms the market is struggling with extreme levels of fear nonetheless. Over the past month, VIX has averaged 26.3, well above the 18.6 monthly average since the Great Financial Crisis. September would mark the 10th straight month with the VIX averaging above 20, nearly matching 2020’s 13-month streak. So far, September’s VIX is just short of average monthly highs reached in 2010 (31.5) and 2011 (36.3), but easily above the peaks of 2015-16 (24.6) and 2018 (24.6).In the six months following major VIX peaks since 2009, the S&P 500 averaged a 17.5% gain and was up in each instance. (09/27/22)6. Over 50% of Stocks Down at Least 20% From HighsReturn to Top% of Stocks Trading Below 20% During Downturns

Source: Bloomberg IntelligenceOver half of S&P 500 members are trading more than 20% below their highs, possibly signaling a near-term low. Currently, 55% of members have dipped into bear market territory, crossing the 50% mark in the index that typically accompanies bottoms. Recessionary bear markets, such as 2009 and 2020 when 98.6% and 99.2% of constituents fell more than 20% from market peaks, typically have been more of a washout. Corrections unaffiliated with a severe recession have been less devastating for equities, with an average of about 50% of the large-cap index dipping 20% below its peak.Among sectors, consumer discretionary and real estate have been the biggest losers, with 79% and 84% of constituents down 20% or more from the market peak. Conversely, the energy sector only contains only two stocks that have declined at all year-to-date. (09/27/22)7. Deep Value Options Stack Up to a Fifth of S&P 500Return to TopContributing Analysts Gillian Wolff (Strategy)Read Research Note: BI Equity Strategy: The Week in Charts, May 26% of Stocks Trading Below Single-Digit Forward PE