The technical setup points to pullback after stocks touched record

The S & P 500 may have reached a new all-time high at one point Wednesday, but the technical setup spells trouble ahead, according to Katie Stockton, founder of Fairlead Strategies. The broad market index briefly touched an intraday record of 6,100.81 in the last session, surpassing the level reached in early December before a market pullback, as tech stocks rallied on fresh optimism over the profits that President Donald Trump’s term has promised. But Stockton is skeptical this latest rally can last. The technical analyst, who closely watches price patterns, expects a pullback of 5% to 8% could soon be at hand. The veteran of BTIG, MKM Partners and Morgan Stanley cites a deterioration in market internals that suggests stocks’ comeback following this month’s softer inflation numbers has run its course. “What we suspect is that this is the interruption in the correction, not the end of it,” Stockton said Wednesday. .SPX 3M mountain S & P 500 over the past three months. Stockton’s bearish outlook is based on a number of technical indicators that she says have weakened. Using the Elliott Wave Theory, she expects that stocks are currently in the second phase of a three-part correction — labeled “A,” “B,” and “C” — that determines the direction of a market trend using price movements. Under Elliott Wave analysis , markets experience an initial drop, then bounce back before finally falling into a correction . In the second phase, the “B” wave, the comeback rally is defined by a “fast and furious” movement that suggests it’s counter to the downward trend, Stockton said. Another indicator, the McClellan Oscillator that tracks market breadth, or the number of stocks advancing versus those declining, shows this latest move higher is overdone, Stockton said, “Those market internals are starting to suggest that it’s going to fade here, even starting [Wednesday] or [Thursday],” Stockton said. Stockton expects the S & P 500 could find support around 5,783, or roughly 5% below where the broad market index was trading Wednesday. She even expects the benchmark could test its 200-day moving average, which would equal about an 8% drop from where stocks currently are. What could go right To be sure, if the S & P 500 continues to close definitively above resistance at 6,100 over the next several days, that would result in a short-term positive indicator for the index, the technical analyst said. But she expects the overall market will remain choppy and trade sideways in 2025, absorbing and digesting last year’s gains, when the S & P 500 soared more than 23%, one year after jumping 24% in 2023. “We’re not buying into this strength,” Stockton said. “We’d much prefer to have dry powder on hand to put to work after the so-called potential ‘C’ wave of the correction.”