Piper Sandler’s chief market technician, Craig Johnson, has sounded the alarm about a potential 10% correction looming over the stock market, despite its ongoing rally. Johnson’s warning is rooted in a series of technical signals indicating that the market might not be poised for a significant upswing.
Speaking to CNBC on Wednesday, Johnson highlighted the market’s trajectory, noting that it has surged to the upper end of a well-established 18-month price channel. According to him, such a move does not typically signal the beginning of the next leg up in the market. Instead, it suggests a potential reversal or correction.
Johnson pointed out that the rally has not been uniform across all sectors. Specifically, healthcare and financials stocks have lagged behind mega-cap tech stocks. This divergence implies that the rally may lack the robustness typically associated with sustained market uptrends.
These observations underscore Johnson’s cautious stance on the market’s current trajectory. While the rally has propelled stocks higher, he believes that investors should remain vigilant and prepare for a potential correction of around 10% in the near term.
Johnson’s cautionary stance on the market’s trajectory underscores growing concerns among market experts about a potential downturn. His warning comes amidst a backdrop of increasing unease about overvalued stocks and unfavorable market fundamentals.
The concept of a “high-level trading range” (HLTR) suggests that the market may be entering a period of consolidation or sideways movement, characterized by limited upside potential and increased vulnerability to corrections. Johnson believes that the market’s current positioning at the upper end of this range heightens the risk of a significant correction, potentially around 10%.
A 10% correction, as predicted by Johnson, could wipe out all the gains made by the S&P 500 for the year, highlighting the severity of the potential downturn. This scenario aligns with similar warnings from other market experts, including John Hussman, Robert Prechter, Jon Wolfenbarger, and Tom Lee, who have all expressed concerns about various aspects of the market’s health and stability.
These collective warnings serve as a reminder for investors to exercise caution and remain vigilant in navigating the current market environment. As uncertainties persist and risks loom, prudent risk management strategies become increasingly important to safeguard investment portfolios against potential downturns.