The head of technical strategy at Fundstrat believes that it is likely not yet the time for investors to enter the market, as the S&P 500 continues to flash signs of weakness.
In a new interview with Jimmy Connor, Mark Newton says he expects the S&P 500 to hit a new all-time high this year at 7,300.
But Newton warns that the rally en route to record levels could be preceded by a deep corrective move.
“And my target for the S&P for the year is 7,300. But I discussed with clients that I thought there could be a 15% to 20% sell-off that likely would start sometime in the spring. And then after a bounce, we could see a double dip and a pullback between August and October of this year.
So I think this sell-off has begun. Markets have shown notable deterioration in momentum and breadth. A lot of the sectors have started to roll over to negative. Historically, they’ve been holding up, while it was just technology and parts of software that had shown technical damage. And now we’re starting to see more and more evidence of many different sectors sort of joining suit.”
The analyst believes that the market could carve a tradeable bottom in the coming weeks, setting the stage for a relief rally. He also sees the S&P 500 selling off again in the second half of the year to complete his double-dip scenario.
“A lot of my targets are either mid-April or mid-May for a pretty noticeable, meaningful bottom in the equity market. And then we have a pretty decent rally throughout the summer. And then thereafter, I suspect heading into the fall, we probably will have some volatility there as well.”
For now, Newton believes that the S&P 500 will likely see one more leg down.
“I think it is possible for us to probably get down to 6,200. That would be about a 38% retracement of the whole move up since last April. It also lines up very close to an area where we peaked out last February near those prior highs. So there are a few things that line up there. I think you might have a little bit more downside over the next month or so, but it’s going to prove to be very volatile and very, very choppy.
I think that most of the sentiment gauges I see are certainly getting a little bit more pessimistic, though I haven’t really seen evidence of capitulation yet. And I think that’s really important. It’s almost like when you try to putt a golf ball down a flight of marble stairs, and you order it to stop halfway down. And the momentum right now is really, really sharply to the downside.”
At time of writing, the S&P 500 is trading at 6,477.
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