Past bear markets have not had ‘this level of retail investors’: Strategist

Oxbow Advisors Managing Partner Ted Oakley and Michele Schneider, Marketgauge.com Partner and Director of Trading Research & Education, join Yahoo Finance Live to discuss how markets closed on Thursday, the outlook for the bear market, and expectations for the July jobs report.

Video transcript

BRIAN CHEUNG: And we are waiting for the closing bell again, as we get--

[WALL STREET BELL CHIMING]

[MUSIC PLAYING]

[CROWD CHEERING]

DAVE BRIGGS: All right, that'll do it for trading on this day. Let's take a look another look at where the market did close on this day. Here we go, mixed markets. 85 point drop on the Dow. The S&P falls just marginally, three points. And a late rally for the NASDAQ, closing up 50-plus points.

Let's get back in on the markets. Joining us now Ted Oakley, Oxford Advisors managing partner, and Michelle Schneider, Marketgauge.com partner and director of trading, research, education. Nice to see you both.

Michelle, let's start with you. What are you watching? What's the one indicator you are keeping your eye on ahead of this jobs number that gives you the best sense of where we are?

MICHELLE SCHNEIDER: I really have been focused a lot this week on the relationship between the yields, looking at the long bonds, the TLTs versus the performance of the SPIEs. And right now, we still have the SPIE outperforming the TLT. But the TLTs have been consolidating over a major moving average.

And if we start to see those TLTs outperform the SPIEs, I think that's not only fair warning to the market that the bond market, which has been going down with the SPIEs this year, is now more of a flight to safety and could be real trouble for the actual equities market. Flip side, though, if we continue to see the SPIE outperform and the yields kind of even stay where they are without moving down or up too much, that could still be another leg up for the market.

BRIAN CHEUNG: Ted, I want to direct this question over to you. You know, it's a mixed market today. But of course, the broad story since, essentially the Fed's meeting last week, was a bull market, right? It seems like maybe we've reached the bottom. Do you not agree with that?

TED OAKLEY: You know, I don't agree with that. I think this is nothing more than a bear market bounce, You know? And we had the same thing back in March, about the same percentage actually. We may be at 1% or 2% more right now. But this looks very normal. You get these all along, but we don't really see anything that would make you even remotely believe we're into a new bull market right here.

DAVE BRIGGS: How about you, Michelle?

MICHELLE SCHNEIDER: Well, I would agree that this is more of a bear market bounce or a market that's establishing a new trading range. It's been a theme that we've been looking at all year, which is basically a more of a stagnating economy. Therefore, a trading range type of environment.

And the bounce that we have seen, of course, after very oversold conditions right now, we're getting into very overbought conditions. And if you look just at a chart of NASDAQ versus the momentum right now, every time we've gotten to this level of peak momentum with the price, we start to see a downturn.

What might be different, again, like I say, this time, is that in other bear markets, we have not seen this level of retail investors to the tune of 25 billion. So it may be that we go down from here. I'm just not necessarily so sure at this point, unless of course anything happens geopolitically or inflation goes crazy again, which I believe it could at least rise that-- and we will see a new low.

So we'll just get back into an established range. Right now, I'm looking at 405 to about 418 in the SPIE. And whichever way that range breaks, then you probably would have some follow through.

BRIAN CHEUNG: So the big economic release that we're waiting for is tomorrow morning's July jobs report. Ted, any thoughts on how important that report is going to be, what you might expect to see? And how much the Fed is going to be holding their hat on that report?

TED OAKLEY: Well, you know, it's a lagging indicator. And so I don't think that's going to give them any reason to do anything. It's typically lags. The other indicator is certainly not something we watch that closely. So I don't suspect there's anything coming out of it.

DAVE BRIGGS: Michelle, what are you watching inside that jobs number? And I just want to follow up on inflation. You expect-- or you think that it could, in fact, go up next month?

MICHELLE SCHNEIDER: Well, not just next month. I mean, before I answer the question about the jobs report. If you just look at the CPI numbers in terms of the core versus broad, the broad CPI numbers are so much higher. And obviously, we can still see that there's inflation, not just in this country, but globally. And anything could happen that could really continue that.

And even if we look at the last parallels of the '70s, some of the commodities had peaked-- not necessarily fallen, but peaked. And then gold and silver went up because the inflation narrative changed, not so much that prices kept going up, but that the credibility of monetary policy, of governments keeping things in control went way down. So that's-- I just wanted to say that.

As far as the jobs report, there's a lot of consensus that it's going to be basically unchanged. So like Ted said, I don't think there's gonna be any great fanfare as it's in the background. But we will be looking at labor participation, which we know has been falling. And we'll be looking at wage increases, which obviously, have not kept up with inflation. But still, could be somewhat inflationary if they've gone up at all.

BRIAN CHEUNG: And then lastly, Ted, we are still in the midst of earnings season. We're actually awaiting some reports from the likes of Lyft and also Warner Brothers this afternoon. What have you seen in the earnings reports that tells you what type of environment we're in, economically?

TED OAKLEY: Well, I've seen a lot of periods like this. And it's usually always the same. They reduce their guidance before the numbers come out. So you know, it makes them look like they actually beat the estimates. But when you look at real earnings, their earnings versus where they were last quarter or the quarter before, they're not all that great.

And I think that's what throws people off in here. You know, you'll see the headline beat estimates. That really actually means nothing because they've already guide them down in an estimate that didn't mean anything. So that's been the Wall Street game for many, many years. And it's still out there.

DAVE BRIGGS: All right, Ted Oakley, Michelle Schneider, great to have you both. Appreciate it.