The market is gearing up for a relief rally after a drop in interest rates that caused the S&P 500 to drop 8% in the past two months.
That said Katie Stockton, founder of Fairlead Strategies, who said technical indicators hit 'oversold extremes' on Tuesday after a crescendo of panic selling.
We are one step closer to a short-term low, he said, highlighting that key levels of support for the S&P 500 are now in play. Stockton highlighted the 200-day moving average at 4,203, as well as the 4,180 to 4,195 as key levels of support to watch, all of which are about 1% below current levels.
Stockton's indicators include CNN's Fear & Greed Index, which showed a decrease in breadth and momentum indicators like the difference between new highs and new lows of issues on the New York Stock Exchange.
The last time Stockton observed five stock market indicators hit oversold extremes was in June 2022, which represented a short-term low for the S&P 500 as it embarked on a two-month long relief rally of about 18%.
But Stockton isn't ready to hit the buy button for stocks just yet.
Stockton said in a statement he spoke with the Associated Press on Monday.
Stockton wants to see the S&P 500's stochastic index, which measures momentum, rise back above 20%, which would generate an oversold 'buy' signal. The stochastic indicator is currently at around 10%.
Stockton wants to see the S&P 500 find and test its support level before buying stocks.
Stockton said the decision was a step in the direction of boosting the company's financial performance.
If the S&P 500 manages to successfully test support and then embark on a shorter-term relief rally, Stockton is watching 4,460 as a logical area of resistance, which represents potential upside of about 5% from current levels.