A ‘tired’ stock market is a reason for caution, says chart watcher

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Do stock-market bulls need a timeout? One chart watcher argues that the rally that’s seen the S&P 500 roar back from the verge of a bear market to the...

In a Thursday note, George Davis, chief technical strategist at RBC Capital Markets, argued that the rally that’s seen the S&P 500 SPX, +0.16% roar back from the verge of a bear market to the cusp of record territory in less than four months has left the stock market looking “tired.” The setup at least argues for some caution in the near term, he said. Here’s his candlestick chart, below:

Thursday’s gains, however, might buy some time. The S&P 500 ended with a gain of around 5 points, or 0.2%, near 2,905. After notching an all-time closing high at 2,930.75 on Sept. 20, a fourth-quarter selloff pushed the benchmark large-cap index deep into correction territory but stopped just short of a bear market — popularly defined as a fall of 20% from a peak. In a V-shaped rebound, the index through Wednesday was up 24% from its Christmas Eve low, and sat just 1% away from its Sept. 20 high.

While fund-flow data and sentiment surveys show investors have warmed up to the market as it’s continued its rally, they’ve yet to swarm in. Citing a glut of uninvested cash, Larry Fink, the chief executive of BlackRock Inc. BLK, -0.39% the world’s largest asset manager, warned earlier this week that a “melt-up” was a more likely near-term scenario than a “meltdown.

 

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