The founder of a technical analysis firm says some of the biggest names in the S&P 500 are showing signs of strain just as the index dives below a closely-watched indicator.
In a new CNBC interview, Fairlead Strategies founder Katie Stockton says the S&P 500 is now likely to fall further after breaching the 200-day moving average.
“So when you see them breached, of course, it suggests that we have something worse than just a corrective phase. But then I would guess also that maybe some of these algorithmic trading programs have that 200-day becomes sort of a breakdown just by the nature of so many eyes being on that 200-day… And we feel that that’s a risk metric, and that the next support level is about six or seven percentage points below.”
The S&P 500 is trading at 6,506, with the 200-day moving average hovering at 6,621. A 7% pullback from the 200-day moving average takes the S&P 500 down to around 6,150.
Stockton also says market leaders are inching closer to bear territory as they gather downside momentum. According to the analyst, the bearish momentum indicates that the sell-off is not yet over.
“Well, so what’s happened is the former leadership, which of course happened to be some of the biggest heavyweights and darlings of the market, now have long-term momentum sell signals. We’re talking about Amazon, Nvidia, Palantir, JPMorgan, Applovin. A lot of the darlings are now in a position where either they’re probably having entered trading ranges at best or even bear cycles.
So it doesn’t bode well, of course, for us getting out of this corrective phase quickly. The correction does have different characteristics than early last year, and that one it is taking longer. It’s gone from sort of a neutral range. It’s now more of a grind on the downside as opposed to something that’s more swift, and that would be more likely a counter-trend situation.”
The analyst adds that a bounce could materialize in the short term, but it will likely be a short-lived surge.
“The soonest that we could get buy signals from the counter-trend indicators that we track is in about two weeks. So what we’re going to try to do is just try to time short-term entries and exits within this context.”
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