Market Blog
As we discussed in earlier this week in Markets Due for a Pause, there were multiple technical reasons to believe that US equities were due for some sort a pullback following a more than 30% rally from the March 23 lows. Technical resistance near the 2935 level for the S&P 500 Index, declining participation, and seasonal headwinds all suggested a near-term downward bias.
On Tuesday and Wednesday, the S&P 500 pulled back more than 3.5%, and closed below its 20-day moving average for the first time since April 3. So where do we go from here?
We would first state that our base case is not for a full retest of the March 23 lows. However, following the initial spike off major historical market lows, a correction of around 10% has been common. A 10% correction from last week’s highs happens to fall almost exactly at 2650, a key area of technical support marked by the green line on the LPL Chart of the Day.
In addition, while the percent of individual stocks above their respective 20-day moving averages has fallen considerably over the past month, because the indicator is so short-term, we believe it may need to fall further before it can be considered oversold.
“Stocks were quite extended following their record run in April, and lower returns have historically accompanied the summer months,” explained LPL Financial Senior Market Strategist Ryan Detrick. “However, we believe a correction could present the buying opportunity that better aligns stock prices with the challenging economic outlook.”
We will continue to monitor technical market indicators as new data comes in, but we believe investors should be paying attention to the performance of the financials and industrials sectors in the coming days and weeks. These groups do not necessarily have to lead the market higher, but many of these stocks topped out two weeks ago contributing to the poor market breadth, or participation cited above. They will likely need to stabilize before the broad market can continue higher.
IMPORTANT DISCLOSURES
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This Research material was prepared by LPL Financial, LLC.
Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC).
Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.
- Not Insured by FDIC/NCUA or Any Other Government Agency
- Not Bank/Credit Union Guaranteed
- Not Bank/Credit Union Deposits or Obligations
- May Lose Value
For Public Use – Tracking 1-05011296