The latest stock sell-off is a ‘healthy pullback’ and investors should refrain from panicking, according to one technical analyst

NYSE Trader
A trader works on the floor of the New York Stock Exchange (NYSE) in New York, U.S., March 9, 2020.

  • The ongoing sell-off in the stock market represents a “healthy pullback,” technical analyst Katie Stockton said in a note on Monday.
  • The S&P 500 is down about 3% from its record high, with losses accelerating in Monday’s trading session.
  • “We think the pullback will be short-lived, maturing later this week,” Stockton said.
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A sell-off in US stocks accelerated on Monday, with the S&P 500 falling as much as 2% amid investor concerns about rising COVID-19 cases due to the Delta variant.

But technical analyst Katie Stockton of Fairlead Strategies views the sell-off in stocks as a “healthy pullback” that will likely be short-lived and could present a buying opportunity, according to a Monday note.

The S&P 500 fell below its 20-day moving average on Monday for the first time since June, when a four-day pullback took hold in the market.

“But we think [this] pullback will be similarly short-lived, maturing later this week with the McClellan Oscillator and daily stochastics having already fallen to levels associated with the June low,” Stockton explained.

The McClellan Oscillator measures market breadth, which has been deteriorating in recent weeks as mega-cap tech stocks like Apple and Amazon led the market higher. Meanwhile, the Stochastic Oscillator is a momentum indicator that helps identify overbought and oversold levels of a specific security.

Stockton sees support for the S&P 500 at its 50-day moving average, which sits at 4,240 at time of publication. So far, that support has held, with the S&P 500 hitting an intra-day low of 4,239.82 before paring its losses.

“I think the market is getting flushed out here,” Stockton told Insider, adding that she is seeing lots of extremes in certain market indicators. Stockton said the S&P 500 e-mini futures flashed a DeMark “13 buy” signal, which hasn’t occured since June 21.

“I would be looking for opportunities to add exposure (and, cover shorts) in the coming days assuming the signal gives way to stabilization,” Stockton said.

Stockton isn’t alone in thinking that the current sell-off in stocks may be limited. Fundstrat’s Tom Lee argued in a note on Monday that the COVID-19 Delta variant represents “more bark than bite” and that the current sell-off sets stocks up well for a rally in the second half of the year.

S&P 500 futures stock chart
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