Markets still have room to correct themselves before the year is over despite the traditional strength brought about by the holiday season, BTIG technical analyst Katie Stockton told CNBC on Thursday.
"There's been a little bit of a loss of momentum recently on a short-term basis as we've approached 20,000 for the Dow industrials," Stockton said. "That's not really a resistance level, but somehow market psychology creates a little resistance at times near those round numbers, so this would be a very natural place for a pullback tenfold."
"I've been of the belief that the pullback will actually start before year-end, so no Santa Claus rally," she told "Squawk on the Street." The timing for such a rally is usually in the week between Christmas and New Year's Day.
While Stockton said the market remains bullish on the long term, she argued that it is largely overbought and needs relief. She recommended that investors wait to add exposure, or invest in particular stocks or sectors, until early 2017.
"When we see a pullback, we want to be adding exposure to potentially take advantage of that," Stockton said, adding that the absence of a Santa rally might let markets take a breath before moving steadily into the new year.
"We might not see [the Santa rally] this time because we actually have some momentum [in] sell signals arising just now, so I think that'll unfold and take us into early January," she said.