Look out: A ‘trading peak’ could be around the corner

The market is nearing a "trading peak" of sorts, according to one equity strategist whose short- and intermediate-term models are pointing to a dip afoot in the next couple of weeks.

"That doesn't mean a correction has to happen, but over the past four decades we have come to trust our models," Jeffrey Saut, chief investment strategist at Raymond James, wrote in a note Thursday, adding the market appears to have used up most of its "internal energy."

Saut's own models for assessing the health of the market turned positive in the wake of the U.S. election in November, indicating the market would grind higher into late January and early February, where it appeared the market would have a window of "downside vulnerability," as Saut puts it. He doesn't forecast that such a pullback in the coming weeks will be severe, placing the range of potential downside between 5 and 10 percent.

Now, Saut admits that models don't always work. But, he wrote, likening navigating the market to flying an airplane, "when you are in the 'soup,' and have no visible horizon, you have to trust your instruments. The same is true for the stock market; you have to trust your instruments."

Saut's advice to clients over the last two weeks has included trimming their holdings, placing stop-losses on their positions or trading out of speculative positions in the case of encountering such a near-term pullback. A stop-loss order automatically sells out of a trader's position at a certain downside price, hopefully limiting that trader's losses.

Some market strategists at this point have called the market overbought, having run too far, too fast, in the wake of the U.S. election. Analyst Tom McClellan said Thursday on CNBC's "Squawk Box" that the postelection rally should continue through 2017, but that the market is overdue for a correction. The S&P 500 and Dow Jones industrial average have risen 7 percent and nearly 10 percent, respectively, since the election in November, the Dow breaking through the 20,000 milestone on Wednesday.


Videos

Trades to Watch

Trader Bios

About

Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

Read more

Connect