No Limit Down for Stocks, No Shut-Off, and the Christmas Line Holds

It was an unusual day on Wall Street Thursday. Futures on the S&P 500 avoided triggering any volatility halts, the whole market didn’t need to be shut off at any point, and a 15-month-old support line on price charts buttressed the bulls.

“A moment of relative calm,” said Gary Bradshaw, a portfolio manager at Hodges Capital Management. “Things just can’t keep on falling 8% a day.”

It probably won’t last, but for the first time in what felt like forever, stocks managed to trade without setting off any market-wide circuit breakers for the full 6 1/2 hours. Shutdowns like those, kicking in when losses reach 7%, happened twice before during the week, and twice last week. Overnight, limit-up and limit-down boundaries that put a stop to rallies and routs in index futures have gone off seven times since two Sundays ago. Not today.

Futures on the S&P 500 did manage to swing 8.1% from peak to trough, but while the range was five times as wide as the average in the first two months of the year, it was a third narrower than the previous five days.

Nervous traders watching the S&P 500 looked to 2,351 for comfort — the bottom reached on Christmas Eve 2018. They found it. After dipping below the level Wednesday and bouncing, the same thing happened again. To Matt Maley at Miller Tabak & Co., that’s a really good sign.

“Should the index break below that level and close below it in a meaningful way, it could raise the odds that the panic will grow and chaos could result over the weekend,” said Maley. “However, if it can bounce off that level again, but this time do it in a significant way, it should lead to the kind of rally that will last more than just one day.”

Earlier: Christmas 2018 Looms With Fed Failing to Put Floor Under S&P 500

Thursday’s rally came as investors digested the latest fiscal and economic measures imposed by global policy makers aimed at easing the market turmoil. The S&P 500, which has shed $9 trillion in value, recorded a move of at least 4% eight straight days through Wednesday, a feat not seen since the Great Depression. On Thursday, it gained 0.5%, its smallest move since February.

“The vast majority of the damage is likely done at this point but we certainly could have more downside,” said Ed Campbell, a portfolio manager and managing director at QMA. “We’re truly in uncharted waters here and we need to recognize the uncertainty, fluidity of the current situation.”

Another day, another threat, on Friday: a quarterly event known as quadruple witching, in which mayhem is sometimes unleashed by the expiration of various futures and options contracts.

“Even in the sleepy times in the market things get weird on quadruple witching days,” said Kim Forrest, chief investment officer of Bokeh Capital Partners. “It’s going to be nuts. It’s icing on the icing.”

— With assistance by Claire Ballentine

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