Warning for Stock Market Bulls – Stock Market Technician Calls for 9% Stock Market Correction
As the S&P 500 flirts with its all-time highs, there is a great divide between technicians calling for a correction and bulls who think the rally has legs.
In his research note Monday April 1, 2013 — Oppenheimer Asset Management’s chief market technician Carter Worth argues that the market is ahead of itself and that investors are right to anticipate and position for a normal, 9 percent Stock Market Correction.
Worth notes that the move off the November 16, 2012 low of 1,343.05 to the high a week ago of 1,563.32 is a mature intermediate advance. He said it is mature in terms of magnitude (up 16.4 percent) and duration (18 weeks in the making), which leaves the S&P 500 in a steep uncorrected position.
The technician tells his clients that a Stock Market Pullback is in the cards, just like the last two times the market advanced four to five months without pause.
“Further, we believe those who continue to blindly/stubbornly stay long without trimming in any way, are embracing asymmetrical risk/reward, chasing limited upside while risking disproportionate downside,” Worth said.
While the charts might point to a correction ahead, James Stack of InvesTech Research said historical evidence points toward further gains.
The S&P 500 has now moved upward in 10 of the past 11 weeks. Over the past 85 years, there have been 23 instances when the S&P 500 has had a similar winning streak. While it is unusual for the market to be up in 10 of 11 weeks, Stack said, it is not necessarily a sign of imminent trouble and a pending market correction.
When that has happened, the S&P 500 moved sideways roughly half the time in the following month. But by the end of three months, there was a median gain of 4.9 percent. Gains really picked up six months and even a year later, when the index rose on average 7 percent and 12.6 percent, respectively.
There were only two instances when the market was down more than 5 percent (1957 and 1989), but both occurred when there was significant tightening of Federal Reserve policy during the preceding 18 to 24 months, Stack said.
Tags: 9 Percent Stock Market Correction, Carter Worth, Federal Reserve, Federal Reserve Policy, InvesTech Research, James Stack, Oppenheimer Asset Management, S&P 500, Stock Market Bulls, Stock Market Pullback, Stock Market Technician