A series of “worrisome signals” are pointing to weakening market momentum and a possible pullback, according to a recent article in The Wall Street Journal.
The signals are as follows:
- The S&P 500 has been hugging or lagging its 50-day moving average, a “short-term yardstick used by technical analysts to track trading momentum,” the article says, adding, “The longer the benchmark takes to break back above, the thinking goes, the sturdier this technical resistance will become, hindering the potential for gains.”
- The percentage of S&P 500 components trading above their 50-day moving averages has dropped to 46%, down from almost 75% just one month ago (data from Bespoke Investment Group).
- “The number of S&P 500 stocks marking new 52-week lows has been rising.” Baird investment strategist William Delwiche said that last month the proportion of stocks at their lows was the highest since early 2016, “when the market was under severe pressure over global growth concerns.”
- According to Katie Stockton, a technical strategist at BTIG, the number of S&P 500 stocks dipping below past key technical levels has “outnumbered those breaking out by a tally of about 2.5-1” last month, “another sign of flagging market momentum.”
Notwithstanding, the article notes Stockton’s assertion that technical analysts are not forecasting an all-out market decline, and concludes: “Market hiccups in recent years have repeatedly made for opportunities. It could be time to get some cash ready to buy the next dip.”