The S&P 500’s cyclical correction is likely to be in its later stages, according to Ari Wald, Technical Analyst at Oppenheimer.
Wald compares the current cyclical correction (since May 2015) to 11 other bear cycles since 1950. In 9 out of the 11 instances the secular bull market resumed within a year. The other two were resolved within 15 months (see Chart 1).
Moreover, Wald says the S&P 500 is supported by accumulative volume and the index’s breakout at 2000 is now support. He sees 2080 as the next level of resistance and although the index looks overbought by some measures, he doesn’t think there will be meaningful downside until volume into declining shares on the NYSE exceeds the volume into advancing shares. Such crossovers, Wald says, have provided timely buy (Adv. > Decl.) and sell signals (Decl. > Adv) using a 21-day average (see Chart 2).
Overall, Wald recommends buying S&P weakness. He suggests going overweight Industrials at the expense of Consumer Discretionary (now given market weight in his analysis) based on a breakout from an 8-month base in the relative strength graph (see Chart 3). However, he thinks the weaker trends of the Russell 2000 and Financials should be sold.