The stock market is poised for a short-term bounce, but technical analysts who watch price charts warn that the correction is not yet over. Stocks were higher on Monday, attempting to recover or at least steady after last week’s losses, when the S & P 500 posted its worst week since March 2023. The broad market index fell more than 5% from its 52-week high, after recent hotter inflation reports spurred fears that interest rates set by the Federal Reserve will stay higher for longer than investors had expected. Wall Street’s chart watchers broadly anticipate that stocks are now due for a tactical bounce after their recent declines, especially in a week heavy with earnings from the largest technology companies. But they also remain wary that the consolidation has further to go. “Washed out and deep oversold conditions have not expanded to the point we feel confident a real low has been formed, even as a near-term bounce is likely,” JC O’Hara, chief market technician at Roth MKM, wrote on Sunday. The technician said he anticipates support for stocks — the point at which buyers will reemerge — between 4,700-4,800 in the S & P 500. That’s roughly a 3% to 5% fall from where the broad market index closed Friday, at 4967.23. “History suggests we are nearing a tactical low with a growing likelihood of a bounce developing,” O’Hara continued. “This may not be the optimal ‘low’ to buy, but selling at this point is not something we recommend.” .SPX YTD mountain S & P 500 To be sure, some observers anticipate a more durable stock market rally, rather than a mere bounce. Fundstrat’s Tom Lee expects stocks are oversold, saying all equities need are a positive catalyst to go higher. “I think as long as inflation tracks better than expected, I think we’re in a good position to rally,” Lee told CNBC’s ” Squawk Box ” on Monday. But other technicians held a view similar to O’Hara’s. On Saturday, Oppenheimer’s Ari Wald wrote that stocks appear “tactically attractive,” but that the market now “needs to base.” He anticipates the S & P 500 could find support down at 4,800, and may not find a true bottom for several weeks. He added that Treasury yields have to stop going up in order for equities to start rising again. Unlike O’Hara, however, he anticipates that investors can start buying the dip now. “While we think the S & P may be within 2-4% of its correction low, the final inflection point may still be several weeks away,” Wald wrote. “Looking ahead, we expect to become increasingly bullish as summer-time nears because we’ve shown first-term election years are typically strongest between June and August.” “For now, investors should use down days opportunistically and keep near-term expectations balanced,” Wald added. Meanwhile, BTIG’s Jonathan Krinsky said he anticipates a bounce to “materialize early this week,” as tactical indicators show oversold conditions. But he anticipates that the selloff will take longer to play out, with a pullback bringing the S & P 500 back to 4,700. He noted energy is the outperforming sector. “So far, the SPX’s correction stands at -5.9% on an intraday basis, exactly the same as the initial drawdown in August ’23 before a multi-week bounce,” Krinsky wrote. “While we don’t expect things to play out the same from here, it’s worth noting that a similar final drawdown would bring SPX to ~4700.” “While 4800 is a logical support, an overshoot would also tag the rising 200-[day moving average] (4674),” Krinsky added. “The July-October correction was three months long [in 2023], and we are less than a month into this correction.” Elsewhere, Wolfe’s Rob Ginsberg anticipates there will be continued rotation in the market, most notably, to value from growth.
The stock market is primed for a short-term bounce, but correction still not over
Apr 22, 2024
