Market Correction Due: Stocks Are Running Out Of Reasons To Move Higher, Analyst Says

Stocks need a reason to move higher, and the market is running out of those reasons. Thus, Craig Johnson, chief market technician at Piper Sandler, believes a market correction is imminent.

“Some of the internal indicators that we produce have just given us a sell signal,” Johnson said on Monday, while appearing on Benzinga’s PreMarket Prep.

“When we’ve seen this signal in the past, it’s been a pretty good indication looking forward over the next three or four months — it could be just a pullback or a correction. But it’ll definitely be more than just noise,” he said.

Johnson noted three technical indicators, including a decline in the number of industry groups that were above their 40-week average, while the number of new highs among these groups peaked at the end of 2023.

“All of this happened as the market was working its way higher, so this market is really going up on bad breath,” he said.

“So, we’re saying: ‘You don’t have to let go, but hold on loosely.’ Be ready for a correction in this market that could probably take the S&P 500 back to about 4,600,” Johnson said, adding that the low is likely to come towards the end of March or early April, at which point the market will provide a better entry point.

Also Read: S&P 500 Hits 5,000 Milestone, Yet Concerns Of Overvaluation Versus Its Equal-Weight Counterpart Mount

Will There Be A Catalyst For A Correction?

Johnson said that earnings season and expectations of Federal Reserve interest rate cuts have been the catalysts for sending the market higher. While the catalyst for a correction, if inaction can be called such, will be the lack of positive drivers.

“We’ll be out of earnings season, and the Fed isn’t going to tell us anything new, probably until the May meeting,” he said.

This doesn’t mean, however, that Piper Sandler is turning negative on the market, Johnson said.

“We like the market longer term,” he said, but added he expected some rotation out of the tech mega caps, such as Amazon (NASDAQ:AMZN) and Meta Platforms (NASDAQ:META) towards financials and healthcare stocks.

These are sectors that underperformed the main index in 2023. In 2023, the SPDR S&P 500 ETF (NYSE:SPY), an exchange trade fund that tracks the main index, gained 24%.

By contrast, the iShares U.S. Financial…