After one of the best months in four years for stocks, technical indicators for the S&P 500 point to a near-term pullback. But a BTIG strategist says any market selloff should be viewed as a buying opportunity.
The S&P 500 SPX, +1.19% fell 0.5% Friday, which was an “outside down” day, a term used by technicians to describe a session whose chart bar extends both higher and lower than that of the previous day. In other words, the trading band for that day is outside of the previous day’s range. This trend suggests that selling pressure may be building, which, on top of weak emerging markets, could trigger a selloff in the near term, according Katie Stockton, chief technical strategist at BTIG.
“However, we welcome a swift pullback as a way to relieve prolonged short-term overbought conditions,” said Stockton.
Momentum in the market has also improved sufficiently to support fresh highs for the S&P 500 by the end of the year, while an improvement in the ratio of stocks advancing versus decliners bodes well for the market’s resilience.
As illustrated in Stockton’s chart below, the stochastic oscillator, which measures momentum, is pointing up.
“A breakout to a new high by the S&P 500 would yield an intermediate-term measured move price projection of about 2,180, almost 5% above current levels,” she said.
Ari Wald, a strategist at Oppenheimer, echoed Stockton’s view, taking note of bullish trends among large-cap stocks. “For the S&P 500, the sentiment pendulum has swung back toward optimism, and seasonal trends remain positive through year-end,” he said.
Wald conceded the existence of some cautionary signals, but the negatives, he predicted, will be offset by rotational buying into index-sensitive bellwethers, particularly against the backdrop of the Federal Reserve’s low-interest-rate policy.
The S&P 500 was up 0.7% to 2,094 after midday Monday, while the Dow Jones Industrial Average DJIA, +0.94% had gained 0.5% to 17,757 and the Nasdaq Composite COMP, +1.45% had surged 1% to 5,105. All three indexes closed out October with their biggest monthly gains since 2011.
link : http://www.marketwatch.com/story/these-technical-charts-say-dont-fear-the-stock-market-pullback-2015-11-02?mod=MW_default_top_stories