Wednesday's harrowing day in markets, which saw the Dow at one point tumble as far as 460 points before partially recovering, prompted many market observers to speculate that capitulation had arrived.
That's the moment bargain hunters lust after. Signalling a possible market bottom, it usually arrives after a period of panic selling and extreme volatilility, where most investors give up previous gains in stock prices.
David Rosenberg, however, doesn't think we're there quite yet.
"The massive selloff at the lows did smack of capitulation, but I need more convincing. What you want to see before a price low is confirmed is for momentum, volume, sentiment and breadth to bottom out as well," Mr. Rosenberg, the chief economist with Gluskin Sheff, said Thursday in his Breakfast with Dave newsletter.
Mr. Rosenberg, as we wrote about last week, looks at a number of near-term indicators that hold clues for when a corrective phase in the market is coming to an end. Those indicators suggest that, as of Wednesday morning, this pullback was 85 per cent done, he said.
"I do not get a sense, even in an oversold bounce, that this correction has fully run its course. In addition to paying respect to what the internals tells us, I would like to see high-yield corporate bond spreads stop widening and the relative-strength index for the small caps bottom out for at least a few days before we dip some toes back into the pool."
"That said, let's all take a deep breath. It has been three years since the last meaningful pullback, so our senses may have been numbed to some extent. ... In a nutshell, trying to pick the bottom here is a waste of time. To reiterate, the price low will always only be confirmed by volume, breadth and momentum. We are not there."
In Mr. Rosenberg's view, markets are in a "cyclical correction" and the bull market that has gone on for years now is not over. A big piece of his reasoning: the U.S. is showing few signs of heading into a recession anytime soon.
One reason to believe that the pullback this month could reverse itself is that expectations have diminished significantly that the Federal Reserve will soon hike interest rates.
Mr. Rosenberg notes that the market - based on Fed fund futures - has now fully priced out a rate hike in September, 2015, and is even treating October of next year as less than an even-odds bet. "Futures are not even sure at this point that we will see the Fed do anything on rates before 2016 - just a 63-per-cent chance is being discounted right now for December of 2015," he said.
This is all the more interesting given that what had triggered the market correction, beginning with a pullback in small caps, was concern over the Fed possibly hiking rates sooner than many were expecting.
"Ironically, all the things that have sent the market lower - Ebola, Europe, China, ISIS - have now pushed that initial risk onto the back burner."
(Note: David Rosenberg will join us on Tuesday at 1 p.m. (ET) to share his latest market views and answer your questions in a live discussion at Inside the Market.)