After dreadful week, stocks look for reason to bounce

Sat Jan 9, 2016 12:37am EST
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By Chuck Mikolajczak

NEW YORK (Reuters) - Investors who were bloodied in the year-opening stock rout will be hard pressed to find any salve next week.

With prospects dimming for a strong start to earnings season, and worries about slow growth in China continuing to overhang the market, even a price-driven rally may not last beyond a day or three, say longtime market watchers.

"This is a tsunami of negative psychology being driven by China," said Phil Orlando, chief equity market strategist at Federated Investors in New York.

"There is nothing we can do except step back, hunker down and wait for the carnage to play out."

The S&P 500 .SPX suffered its worst five-day opening to a year on record going back to 1929 and the Dow .DJI notched its worst start to the year on record dating back to 1897.

Several analysts have already cut their earnings targets, with Deutsche Bank reducing its fourth-quarter forecasts and admitting it was unsure how much to lower its 2016 estimate because of the continued slump in oil prices.

The technical picture for stocks has also deteriorated with the week's declines. The previous support level of 1,950 now acts as resistance, while the August 2014 lows around 1,870 are seen by market participants as the next support level, leaving the index vulnerable to more losses.

Stocks could be poised for a quick but not lasting rally, said Jeff Saut, chief investment strategist at Raymond James Financial in St. Petersburg, Florida, as many stocks are currently oversold.   Continued...

Traders work on the main trading floor of the New York Stock Exchange shortly after the opening bell of the trading session in the Manhattan borough of New York City, January 7, 2016. REUTERS/Brendan McDermid