Stocks keep ‘retesting’ their lows, with mixed results

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Most investors who still own stocks would like to believe that the worst is over, of course.

And the market has been giving off some signals in recent weeks that, in fact, we’ve reached a level that is a bottom if not the bottom.

One such sign is the action in major stock indexes including the Standard & Poor’s 500.

Although the market remains ridiculously volatile, each time since Oct. 10 that the S&P 500 has fallen into the 830 to 850 area it has rebounded, often the same day.

Analysts refer to this as a case of the index ‘retesting’ its lows. The idea is, if buyers keep returning at a particular level, it could suggest there is confidence that the market shouldn’t have to go dramatically lower.

In other words, many investors -- or the computers they’ve programmed -- are figuring that stocks are cheap enough already.

Tuesday was another case in point: The S&P 500 fell as low as 826.84 intraday, down 2.8% from Monday’s close. Then buyers swarmed, and the index rebounded to close at 859.12, up 1% for the session.

The S&P’s lowest closing level so far in this bear market was 848.92 on Oct. 27, when it was down 45.8% from its record high a year earlier. So closing below that would set off alarms for many analysts.

Ryan Larson, senior trader at Voyageur Asset Management in Chicago, says a more crucial level for the S&P is 818. That was the intraday low on Nov. 13, before stocks staged yet another furious end-of-session rally.

But there’s only so much retesting that can happen before the market risks another breakdown. If the S&P 500 were to fall below 800, Larson says, ‘I think you’d see a lot of panic.’

One knock on the bullish case is that some other well-known indexes haven’t held up as well as the S&P 500 in recent weeks. That suggests the market has been deteriorating around the edges.

The Russell 2,000 small-stock index, for example, fell to a new bear-market closing low on Tuesday, losing 0.8% to 447.51. The previous closing low was 448.40 on Oct. 27.

Financial stocks also continue to hit new lows. The BKX bank stock index fell 1% on Tuesday to a new 12-year low.

And the tech-dominated Nasdaq composite hit a new closing low Monday, at 1,482.05, although it inched up to 1,483.27 on Tuesday.

Some popular mutual funds now are just pennies away from new lows. The giant Growth Fund of America, managed by the L.A.-based American Funds group, closed at $19.68 a share on Tuesday -- just 20 cents above its recent closing low of $19.48 on Oct. 27.

That’s probably getting too close for the comfort of investors who can’t stand the thought of deeper losses in this ugly bear market.