Analyst Warns Of Potential 10% Stock Correction Based On Technical Signals: 'Market Is Certainly Vulnerable'

The stock market is showing signs of a potential 10% correction, according to a leading market technician, despite the ongoing rally.

What Happened: Piper Sandler’s chief market technician, Craig Johnson, has warned of a potential 10% correction in the stock market. This prediction is based on a series of technical signals indicating that the market may not be ready for a significant upturn, reported Business Insider.

“You can see that after that big run off of the October 2023 lows that we’re now pressing to the upper end of the very well-established 18-month price channel,” Johnson said, speaking to CNBC on Wednesday. “This is not where you start the next leg up. You don’t do that at the end of a channel, technically.”

He also notes that the rally has not been uniform, with healthcare and financials stocks lagging behind mega-cap tech stocks. This suggests that the rally may not be as robust as it appears.

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Johnson warns that the market is likely to enter a high-level trading range and is vulnerable to a 10% correction, which could bring the S&P 500 back to around 4,558, erasing all its gains for the year.

“We need to see more evidence. Because right now, the breadth of the market has been steadily contracting throughout all of 2024. This is a market that’s probably going to enter an HLTR, or a high-level trading range, and at this point in time being at the upper end of that channel, now is a time where this market is certainly vulnerable to see at least a 10% correction,” Johnson said.

A 10% correction could bring the S&P 500 back to around 4,558, erasing all its gains for the year.

Why It Matters: Johnson’s prediction adds to a series of warnings from market experts about a potential stock market downturn. Earlier in February, veteran investor John Hussman highlighted the current “Cluster of Woe,” indicating overvalued stocks and unfavorable market fundamentals. Similarly, renowned investor Robert Prechter warned of a major sell-off, drawing parallels to the years leading up to the 1929 crash.

Market strategist Jon Wolfenbarger also predicted a significant stock market crash and a year-long recession, based on a variety of economic indicators. Additionally, prominent Wall Street strategist Tom Lee issued a warning about an imminent stock market correction following a 21% surge in the S&P 500 over 14 weeks.

These warnings collectively paint a concerning picture of the stock market’s current state and suggest that investors should remain cautious in the coming months.

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