We're looking at a correction, not a downtrend: market strategist
Katie Stockton, from Fairlead Strategies, joins Yahoo Finance's Jen Rogers and Myles Udland to discuss the trends she is seeing in the current volatile markets.
Video Transcript
JENNIFER ROGERS: Let's get a little bit on the market right now, some technical analysis. Bring in Katie Stockton, Fairlead Strategies founder and managing partner. So Katie, before we actually dive into the charts, I have a question from 20,000 feet here. Which is, in these environments, when we are seeing the kind of action that we are seeing-- and it's very fast-- how helpful is technical and chart analysis?
KATIE STOCKTON: I would argue that it's always important, but now especially important. When you do see volatility pick up like this, you have to consult levels and momentum indicators, overbought oversold measures, and probably most importantly, sentiment gauges, to really have an understanding of the market when it's quite disjointed, of course, from fundamentals and even macro pictures at this time.
JENNIFER ROGERS: OK. So we need to be looking at it. What are you paying attention to right now?
KATIE STOCKTON: Well, momentum for one. And of course, it is negative across all time horizons, that short, intermediate, and long term based on the major indices. That's a problem. We saw that develop a couple of weeks ago for some of these indicators, and it's still the case.
Now, we do also have the most oversold extreme that-- since, I guess, December 2018 by some measures and even further back to 2009 by other measures. So it's a very oversold market here that does serve as a potential foundation for an important tradable low. However, we don't have that momentum shift that we like to see for confidence to add exposure with more than just a very short-term time horizon at this time.
MYLES UDLAND: You know, Katie, looking through your presentation, you look at how long it might take to see a confirmed downtrend. And I know that trend is a big part of technical analysis. And in a market like this, is there-- like, what kind of time frame do you need to see in general-- and obviously it'll apply now. But generally, are we talking like we need a month of a certain price action to develop a trend? Is it 60 days, 90 days? Because pretty much the entire move has happened in 18, 19 trading sessions. And I mean, everything from my viewpoint kind of just looks like a broken chart right now.
KATIE STOCKTON: Well, when I look at it, I'm looking at it as a correction, not a downtrend. And it's not really a downtrend until you see a series of lower highs and lower lows. We don't have that yet. So to me, it's not really a bear market, it's not really a downtrend, but a really, really severe down move.
The good news about that is that down moves that are severe and clearly emotionally charged do tend to be counter-trend in nature, meaning that the uptrend that began in 2009 may still actually be intact. That we haven't entered a 2008 or a 2000, 2002 type of move, which was characterized, of course, by those some lower lows. But in percentage terms, the damage has really been done. Like you said, there's been a lot of breakdowns below important support levels.
The S&P 500 is testing a very important level towards the preservation of that uptrend going back to '09 in my work. I'm watching 2,305. And I'm watching that still, even though it's below today on a consecutive weekly closing basis. So a couple of weeks below that level would mark a pretty significant breakdown.
JENNIFER ROGERS: And speaking about sort of the time horizon here, you're also trying to get ahead of the news and let people know there's something that inevitably will come out and there'll be headlines about it. But you don't think that we need to be super worried about it, and that is, of course, the death cross mixed into bold headlines. Why do people not need to worry about it this time?
KATIE STOCKTON: Well, the Dow Industrials do actually have the death cross today. That's when the 50-day moving average crosses below the 200-day moving average. And it often gets a lot of press when it happens, of course, when there's a lot less news out there than there is now. And it tends to be perceived-- in part because of its name-- as a bearish development.
But in reality, these death crosses are late. So you see them towards the end of down moves more often than towards the beginning of down moves. So that's one thing that we don't have to worry about in this tape.
JENNIFER ROGERS: All right, Katie Stockton, Fairlead Strategies founder and managing partner. Have a great day.
KATIE STOCKTON: You too. Take care.
