Prominent stock market technician Tom DeMark is out today with a bearish call for the stock market, which he says will suffer a major correction once the current Trump-fueled rally fizzles.
[DeMark is] forecasting the S&P 500 index SPX, -0.19% to hit 2,213 by next Wednesday, followed by a correction. “Expectation is for U.S. stocks to endure at least 11% decline after top recorded,” he said via email. A correction is typically defined as a drop in an asset of at least 10% from a recent peak.
That forecast would put the broad-market benchmark’s peak well above its previous record of 2,190.15, reached Aug. 15. He sees the Dow Jones Industrial Average DJIA, +0.02% possibly rising as far as 19,434 in a “1-2 day blowoff.”
“Heed and caution are appropriate at this time,” says DeMark, with the major indexes at or near all-time highs, despite so much uncertainty about what a Trump presidency will mean for the global business landscape.
The analyst also expects bonds’ sell-off to end soon. Treasuries have been decimated recently amid fears of a December interest rate hike, which have been exacerbated by Trump’s win. Trump has in the past made very hawkish interest rate commentary, along with plenty of criticism of Federal Reserve policy.
Finally, DeMark thinks Chinese stocks are also likely close to peaking if they haven’t already.
His research is based solely on technical factors, and a “momentum formula that compares closing levels of the S&P 500 with those from four days earlier.”
The SPDR Dow Jones Industrial Average ETF (NYSE:DIA) was mostly flat at $188.13 per share in Friday afternoon trading. Year-to-date, the only ETF that tracks the DJIA has gained 8.12%.