The S&P 500 is still likely to retest its January low despite the ongoing relief rally, according to Fairlead Strategies’ Katie Stockton.
The technical research firm highlighted 4500 and 4600 as key resistance hurdles for the S&P 500.
In previous market declines, “it took another 1-2 months for the correction to fully mature,” Stockton said.
Stockton sees a test of strong resistance being imminent for the S&P 500 that could ultimately lead to a rejection and further weakness ahead, according to the note. A decline back to the January low around 4200 represents potential downside of 6% from current levels.
“The S&P 500 faces intraday resistance near 4500 as a hurdle to its down-trending 50-day moving average near 4600. Initial support near 4200 looks in store for an eventual retest on weak intermediate-term momentum,” Stockton said.
Longer-term, Stockton noted that the S&P 500 is poised to flash a downturn in monthly stochastics to below 80%, which is often associated with major corrective phases in the stock market. Previous times this indicator flashed includes February 2020, October 2018, and March 2018, according to the note.
“In each of those instances, it took another 1-2 months for the correction to fully mature,” Stockton said.
That kind of decline would come amid a period of rising geopolitical tensions between Russia and Ukraine, as well as a hawkish Fed that is poised to begin raising interest rates to get a better handle on taming rising inflation.
But one sector that has been benefiting from the recent volatility, energy, could be poised for a “sell the news” event, Stockton said, noting that counter-trend “sell” signals per the DeMARK Indicators flashed for the first time since November 9.
“The timing of these signals suggests a sell-the-news event may be at hand as it pertains to the Russia-Ukraine conflict,” Stockton said. Support for oil prices is around $81 per barrel, Stockton said, which would represent a potential decline of 13% from current levels.
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