Market correction coming very soon despite Dow's new record, Strategist Dwyer says

Key Points
  • The Russell 2000 broke its 50-day moving average this week as the Dow reached a record high, a sign a pull back may come in the next two weeks, Canaccord's Dwyer says.
  • When the market does drop the opportunities may be in financials, energy, materials and industrials, he said.

Canaccord Genuity's Equity Strategist Tony Dwyer said on CNBC's Halftime Report Thursday the stock market is in the beginning stage of a correction.

Canaccord Genuity's Tony Dwyer: The correction has already begun

Dwyer said, "you have the Russell 2000 breaking its 50-day moving average this week as the Dow hit a new all-time high. When that's happened 79 percent of the time you've had a decline in the next two weeks by a median of about 1.5 percent."

He said he believes there are four clear-cut signs from the market that we've entered a downturn:

  • Extreme overbought condition for stocks
  • Historically low volatility
  • August seasonality (markets are down five of the last seven Augusts)
  • Market history following a "hump" in the U.S. Treasury bill market

But Dwyer sees the greatest evidence that we're already in a pullback by looking at recent movements. "The percent of stocks in the above their 10-day moving average has dropped into the 50 percent rage from the 90 percent range."

Dwyer says a correction will be a buying opportunity. He says "there's a rotation coming where you'll come out of the no growth or slow growth trade meaning tech, overseas, consumer staples and bond surrogates." When that happens, Dwyer says investors should dive into value or pro-growth stocks in the financial, energy, material and industrial sectors.

Despite his call, Dwyer says he is still a long term bull. He is calling for the S&P to hit just 2,510 by year's end, only 40 points higher than we are now, but he forecasts the S&P will jump to 2,800 by the end of 2018. That would be a nearly 14 percent gain from its current level.