The stock market came awfully close to finishing Friday in a bear market, at least 20% off its peak in early January. Many investors would like to see it get there so Wall Street could put that aside and start the work of moving higher.
Mark Newton, head of technical strategy at Fundstrat, doesn’t necessarily think we’ll get that so-called capitulation, the time when investors sell en masse because they’ve given up on recouping their losses.
In fact, Newton thinks the stock market’s late-day reversal on Friday provides hope that a minor bounce is underway.
“While I dislike making big counter-trend calls within downtrends, markets likely have exhausted themselves near-term to the downside and could rally into late May,” Newton said in a research note.
Newton’s S&P 500 targets lie at 4,020-4,030, with above 4,100 as resistance.
The S&P 500 closed Friday at 3,901, up 0.01%. It had swung to as low as 3,810. The S&P 500 has to close below 3,837 for it to officially be in a bear market. The index has fallen for seven straight weeks.
Newton said that while financial media have begun widely using the term bear market, “many of us realize that in broader market terms, this has been a bear market for some time, given the degree of technical damage seen by many issues.”
The strategist noted how the technology sector has begun to “relatively outperform” the S&P 500, and the healthcare sector looks attractive. The “relative breakout in equal-weighted Healthcare vs SPX,” Newton said, is one reason for optimism.
“This suggests that healthcare should work well into June/July,” Newton said. “The fact that healthcare is such a large part of SPX in percentage terms is a tailwind, given this strength.”
Newton said his favorite technical names within the space are the big pharma companies such as Merck (ticker: MRK), Pfizer (PFE), Bristol Myers (BMY) and Eli Lilly (LLY).
He also like biotechs Amgen (AMGN), Regeneron Pharmaceuticals (REGN) and Vertex Pharmaceuticals (VRTX).
“Given that healthcare is nearing a seasonally bullish time, I like buying/owning all these names,” Newton said.
Write to Joe Woelfel at [email protected]
