“A year ago, we turned negative on the markets—in May of 2011. While the indices were near highs, we saw a lot of individual stocks and sectors topping out…I just don’t see that type of waterfall correction occurring this year,” he said.
LaRosa said if the S&P does break through support at 1,357, it would head to 1,340, but he would not expect it to get below 1,300. He said the support level for the Dow is 12,710 and the Nasdaq is 2,946. “My feeling is we have not broken down yet. There is some deterioration in the market. However, if those levels hold we have a chance of rebounding and making new highs,” he said.
Michael Darda, chief market strategist at MKM Partners, agrees the market is not going to be in for a sell off or “summer swoon” similar to last year or the year earlier. “”The fact that this has become nearly a consensus view, based on a panoply of widely cited risk factors, is one reason we believe it is unlikely to occur. We continue to believe pullbacks will remain in the 5%-7% range, so we would be inclined to buy into weakness if/when it develops,” he wrote in a note.
He also points out that the S&P is now 1.5 valuation points lower than it was before last year’s swoon. That would suggest, he notes, that the risks described by the financial media may already be reflected in current prices.
Meanwhile, both Worth and Ross point to signs of technical weakness in some industry sectors.
“Some of the key sectors are starting to show their age from the move we had from the October lows,” said Ross. “Consumer discretion has been a group that has largely carried the market on its back as the economic recovery was more robust than many had anticipated.” Since the beginning of the year, the S&P consumer sector is up 15.4 percent.
Worth also sees some sectors showing signs they are ready to correct or consolidate. He notes the S&P consumer discretionary sector is too far above its 150-day moving average and looks due for a correction, while the consumer staples sector also looks ready to correct.
The technology sector is another that’s too far above its 150-day moving average and risks a bigger correction, he noted.
Telecom is the only single sector at an “identifiable buy or sell juncture” and could be readying for a breakout move. He points out that AT&T , its biggest component, has just broken out.
Materials have sold off to a level of support at the 150-day moving average, where the potential to rebound is high, but he adds it will be important that it finds support and does not deteriorate as the energy sector has. Energy, he adds, has been a poor relative performer and has been “just wandering around” without a lot of character. The S&P energy sector is down 1.7 percent year to date.
As for financials and industrials, they are not signaling either a bullish or bearish trend, but the defensive utilities sector is on a steady uptrend, according to Worth.
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