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The stock market could see a 7% correction in mid-November, says Fundstrat’s Mark Newton.
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Investor complacency and weak seasonal effects could lead to a decline, according to Newton.
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He views any potential pullback as a ‘buy the dip’ opportunity.
According to Fundstrat technical analyst Mark Newton, the stock market appears poised for a 7% correction by mid-November.
Newton told clients in a note Thursday that he expects the S&P 500 to show weakness in November as investor sentiment reaches complacent levels ahead of the Nov. 5 general election.
“While these remain bullish over the medium term, it is doubtful that US stocks will continue to rise in and after the election without some consolidation,” Newton said.
Newton said the potential correction he expects in the stock market will likely only be a “short-term correction” and “not the start of a bigger decline.” market as a ‘buy the dip’ opportunity.
Newton is eyeing the 5,900 level on the S&P 500 as potential resistance for the index. The S&P 500 traded around 5,850 points on Friday.
“The issues with near-term complacency (as judged by low put/call levels on equities), declining breadth, poor seasonal trends and cyclical projections for November, as well as SPX’s largest sector, technology, which has seen the latest time is not performing well are all reasons to be alert to possible trend changes in the coming weeks,” Newton explains.
One “major reason” Newton is turning bearish in the short term is that the current stock rally that started in early August has lasted 88 days, which is exactly how long the April 19 to July 16 rally lasted before a selloff occurred. .
From a time perspective, that’s “why this rally might run out,” Newton said.
Other areas of technical weakness that Newton monitors include negative divergences in momentum as measured by the RSI and the moving average convergence divergence indicators (MACD), a lack of bearish investors as measured by the AAII sentiment data, and seasonal cycles which peaks in the stock market in mid-to-late October, followed by a sell-off through November.
“This market has seemingly dodged a bullet during one of its historically worst periods in most election years thus far. However, investors should not take this as a sign that the coast is clear for an interrupted rally throughout the year,” Newton said.
Read the original article on Business Insider
