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The stock market could face a 7% correction by mid-November, says Fundstrat’s Mark Newton.
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According to Newton, investor complacency and seasonal weakness could trigger a decline.
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Consider any potential pullback an opportunity to “buy the dip.”
The stock market appears primed for a 7% correction in mid-November, according to Fundstrat technical analyst Mark Newton.
Newton told clients in a note Thursday that he expects the S&P 500 to experience weakness heading into November as investor sentiment reaches complacent levels just before the Nov. 5 general election.
“While the medium-term bullish trend remains largely intact, it is doubtful that US stocks will continue to rise during and after the election without any consolidation,” Newton said.
Newton said the potential correction he expects in the stock market is likely to be “only a short-term correction” and “not the start of a larger decline,” taking advantage of Fundstrat’s Tom Lee’s consistent message that investors should consider any fall in stocks. market as an opportunity to “buy the dip.”
Newton is monitoring the 5,900 level on the S&P 500 as potential resistance for the index. The S&P 500 traded around 5,850 on Friday.
“Issues with short-term complacency (judging by low levels of stock buying and selling), declining breadth, poor seasonal trends and cyclical projections for November, as well as the larger SPX sector, technology, which has not performed well lately, are all reasons to be alert to possible trend changes in the coming weeks,” Newton explained.
A “key reason” Newton is turning bearish in the near term is that the current stock rally that began in early August lasts 88 days, which is exactly how long the rally lasted from April 19 to 16. July before a liquidation materialized. .
From a time perspective, that’s “why this rally could lose steam,” Newton said.
Other areas of technical weakness that Newton is monitoring include negative divergences in momentum as measured by the RSI and moving average convergence and divergence (MACD) indicators, a lack of bearish investors as measured by AAII investor sentiment data, and cycles. seasonal patterns that show a spike in the stock market in mid-to-late October, followed by a sell-off through November.
“This market has seemingly ‘dodged a bullet’ so far during one of the worst periods historically during most election years. However, investors should not interpret this to mean that the way is clear for a disrupted year-round rally.” “Newton said.
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