Investors shouldn't buy stocks until two signals flash, according to Fairlead Strategies' Katie Stockton."Intermediate-term momentum remains to the downside," Stockton said.
Investors should wait to buy stocks until two technical signals flash, according to a Monday note from technical analyst Katie Stockton ofStockton said the wait-and-see moment for the stock market comes amid an ongoing period of consolidation following the choppy up and downs seen throughout the month of August.
"The DeMARK Indicators support a few days of consolidation and intermediate-term momentum remains to the downside," Stockton said.decisively breakout above its 4,600 resistance level, which is about 2% higher than today's price of 4,505 for the index. Additionally, Stockton wants to see the momentum-based stochastics indicator turn up on a weekly basis.
Stochastics help technical analysts identify overbought and oversold conditions in the stock market. The indicator peaked in July and has been trending lower since the start of August."Both would suggest momentum has strengthened enough to dictate a more bullish short-term bias," Stockton said. "Otherwise, we would remain hedged."
If Stockton's two criteria to buy stocks are not reached, then she will be watching technical support at around the 4,325 level, which would represent potential downside of about 4% from current levels. If further deterioration in stocks sent the S&P 500 below that support level, Stockton will be watching around 4,195 for the next level of support, which represents potential downside of 7%.