Wall Street analyst Katie Stockton says the recent market bounce may not mark the end of the current correction.
In a new CNBC interview, the founder of the technical analysis research firm Fairlead Strategies says the S&P 500 rally will likely be short-lived as technical indicators suggest more downside price action.
“But I’m not a believer in its sustainability. We are looking for more stabilization this month, but I think it’s an interruption, not necessarily the end to this corrective phase. There are a lot of reasons to say it… New relative lows perhaps. The next support is at the 6,175 area, and I could see it getting worse than that, even, based on the momentum gauges that we track.”
According to Stockton, the market has not yet flashed classic signals that the pullback is over.
“The DeMARK indicators, those overbought/oversold metrics, are supporting about four weeks of stabilization. But that’s about the only indication that I have that this could be a better month. We don’t have oversold upturns. We don’t have extremes that we’d like to see in breadth or sentiment leadership.”
Looking at oil (WTI), the analyst says it has ended its multi-year downtrend following a strong breakout and is now en route to much higher prices. Stockton also says higher oil prices have bearish implications for the US economy and the stock market.
“Yeah, so the breakout’s real. I mean, the breakout actually happened to us before the war was initiated. So we feel like it’s a pretty meaningful long-term turnaround. We’ve already had a spike, and even enough of a spike, I think, to impact markets. the economy, but I think it could get worse, and it doesn’t mean immediately, but the next resistance above this kind of area that we’ve been testing recently is about $130. That’s from the 2022 high – WTI – and beyond that, you’re looking at $147.
So I think what I would just encourage people to think about is, let’s wait for the weight of evidence to suggest that there is a major low in place before getting more aggressively long. I don’t think we should feel the need to chase these brief relief rallies.”
As of Monday’s close, the S&P 500 is trading at 6,611.
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