S&P 500 Outlook: Warning Signal Raises Risk of Market Correction

2020-01-15 09:15:00

Justin McQueen,

What's on this page

S&P 500 | Warning Signals Suggest Top Nearing
S&P 500 Stocks Above 200DMA
Phase 1 Trade Deal Expected to be Signed, However, this is Priced in
S&P 500 Top Nears
S&P 500 Price Chart: Daily Time Frame (Sep 2019 – Jan 2020)

S&P 500 Price Analysis & News

S&P 500 May Top Out Soon
Most Stocks Trading Above 200DMA Since February 2018 Crash
S&P 500 Eyes US-China Phase 1 Deal

Source: Refinitiv

S&P 500 | Warning Signals Suggest Top Nearing

US equity markets have continued to go from strength to strength with the S&P 500 hitting a fresh record high of 3295. Given the lack of dips for buyers to re-enters, investors have seemingly jumped on the equity bandwagon (FOMO) and consequently chasing the market higher. However, with upside looking somewhat stretched, there are growing signs that the S&P 500 and other equity markets alike, could be at risk of a notable pullback.

Moving Averages: 50DMA (3163), 100DMA (3065), 200DMA (2987)

Over 80% of stocks within the S&P 500 are now trading above its 200DMA, which is the highest proportion since the Jan-Feb 2018 VIX blowout. That said, reducing equity exposure may be somewhat prudent, given that the index is seemingly in need of a healthy correction.

S&P 500 Stocks Above 200DMA

Phase 1 Trade Deal Expected to be Signed, However, this is Priced in

Investors continue to place their attention on the ongoing US-China trade dispute and with both parties expected to sign the Phase 1 trade deal today. However, with this largely priced in, the impact on equity markets could be somewhat muted and thus focus will quickly turn towards the next Phase.

S&P 500 Top Nears

Elsewhere, the persistent upside across global equities, Bank of America’s Bull and Bear indicator has hit a 21-month high, consequently nearing extreme bullish sentiment. As such, they note that their indicator has provided its first sell signal since January 2018. Coincidently, this had preceded the sharp violent sell-off seen in February 2018. That said, this raises questions as to whether the S&P 500 is nearing a top in the short run.