Market Volatility Ahead: Analyst Warns of Potential Correction
As the stock market struggles to recover from Wednesday’s sharp decline, one analyst is sounding the alarm on a potential correction. Katie Stockton, founder and managing partner of Fairlead Strategies, warns that if the market doesn’t rebound decisively by Friday, it could trigger a sell signal, hinting at a 10% correction.
Technical Indicators Flashing Red
Stockton points to two key technical indicators that are flashing warning signs. The weekly stochastics indicator, which measures market sentiment, is at risk of an “overbought downturn.” Meanwhile, the moving-average-convergence-divergence (MACD) indicator, which tracks momentum and trends, could flash its first sell signal since July. If both indicators trigger a sell signal, investors should prepare for a potential 7%-10% correction in the medium term.
Seasonal Strength Offers Hope
However, Stockton notes that the market is entering a historically strong period, known as the “Santa Claus rally,” which typically occurs in the last five days of the year and the first two days of the new year. This could provide a much-needed boost to the market, potentially lasting into year-end and beyond.
Other Analysts Weigh In
Market veteran Ed Yardeni also sees elevated correction risk, citing profit-taking, a potential dock strike, and a flurry of executive orders when Donald Trump takes office. While he doesn’t rule out a 10% correction, he views it as a buying opportunity rather than a reason to panic.
Investors on High Alert
As the market navigates these uncertain waters, investors should remain cautious and wait to see if intermediate-term sell signals trigger before hedging their exposure. With the potential for a correction looming, it’s essential to stay informed and adapt to changing market conditions.
Leave a Reply