U.S. Markets open in 5 hrs 36 mins

Two major indices are poised for a pullback, analyst says

Rachel Cao

With the Dow Jones Industrial Average (Dow Jones Global Indexes: .DJI) approaching the 22,000 mark, both the Dow and Dow Transports (Dow Jones Global Indexes: .DJT) are due for a pullback.

"This would be a natural place for a pullback for both of the major indices, and I say that in part for the Dow Industrials," Katie Stockton, chief technical strategist at BTIG, said Tuesday on CNBC's " Power Lunch ." "If you look at a one-year chart, you can see that they're approaching some resistance or potential resistance around 22,000. That's a round number."

"You'll notice at past round numbers — 21,000, 20,000 — there was some short-term resistance at those levels, so it would be a very natural place to see a pullback for the Dow Industrials and for the S&P 500 (INDEX: .SPX)," Stockton said.

Stockton also dismissed concerns about the divergence between Industrials and Transports influencing a pullback.

"I know a lot of people talk about Dow theory, whenever you get a divergence between the Transports and the Industrials, but I wouldn't read too much into it," Stockton said. "I think that Transports, while they might exhibit downside leadership during pullback, I don't see it as a big warning signal here."

The technical analyst also noted that overbought stocks such as stocks in technology and transports have been major Dow leaders, but may have a reason to be concerned.

"I am concerned about the mean reversion we have already started to see, where the overbought stocks — like the Facebooks (NASDAQ: FB) of the world, or the Boeings (NYSE: BA) of the world — that have really run up, they're looking somewhat overextended here," Stockton said.

"Whereas you're catching a bid in the more oversold areas in the market, say, energy, or retail," she said, "so I think that will persist. But really just for the next couple weeks, and that then will ultimately give way to a buying opportunity."



More From CNBC