Fed heroics or no, the S&P 500 level is destined for a retest of lows. These are the levels to watch, says this strategist

Our call of the day from the founder and managing partner of Fairland Strategies, Katie Stockton, has her eyes on some bearish signals for the S&P 500, Fed heroics or no.

She flags short-term oversold conditions in higher growth areas of the market that could help stocks bounce in coming days, especially in a case of well-received Fed comments. “We want to use these relief rallies, which we see as bear market relief rallies as opportunities to reduce exposure to avoid that next downdraft,” she said in an interview with Real Vision on Wednesday.

Stockton went through some technical indicators she’s been watching. For example, she sees signs of a long term downtrend in the S&P’s 200-day moving average, a popular short-term momentum gauge, that flipped to a sell signal recently.

“Even if we were to see the S&P 500 SPX, -3.37% inch above that 200-day moving average, it wouldn’t change for us. We say that because the long-term setup really still is very challenged,” said Stockton.

She also notes the years 2008 to 2009 and 2000 to 2002 “saw retests after retests of that oversold territory,” meaning a bottom for stocks will be a process, she cautions.

“I think the hope that there’s some V bottom already in place is really just that —hope — because that’s what we became accustomed to during corrective phases, but indeed, we think that this is something more than that,” said Stockton.

Stockton is eyeballing a level of support taken from a Fibonacci retracement level — horizontal lines that point to possible support and resistance — around 3,815.

“Now if that level is broken, then we feel that there is really signifcant downside risk to about 3,200, which is the secondary Fibonacci retracement level. We would not rule that out as part of this scenario. But 3,815 is the key support in our work. And we do expect it to ultimately be retested,” said the strategist.

She said utilities and energy are all that’s left in the stock market for the longer term. Her company recently launched the Fairlead Tactical Sector ETF TACK, -0.34%, that’s exposed to those sectors, risk-off assets, short-term Treasuries, long-term Treasuries and gold — a very bearish positioning.

The markets

Stocks DJIA, -3.03% SPX, -3.37% COMP, -3.94% are higher, while Treasury yields TMUBMUSD10Y, 3.042% TMUBMUSD02Y, 3.384% are dipping, and the dollar DXY, +0.34% is tilting south, which is lifting gold GC00, +0.06%. Oil CL.1, -0.10% BRN00, -0.11% is flat.

The buzz

Results ahead from Dollar Tree DLTR, -6.92%, Dollar General DG, -3.97% and Big Lots BIG, -5.74% may offer clues to consumer belt-tightening. Peloton PTON, -3.63% shares dived afte a disappointing outlook and losing more than $1 billion in the quarter.

Nvidia NVDA, -9.23% shares slumped after a cautious outlook from the graphics chipmaker. Here’s what analysts are saying. Also, here’s what the CFO tells MarketWatch about that tough quarter.

Salesforce CRM, -4.99% is slumping after the cloud-software group pledged billions in buybacks, but cut its forecast and missed guidance expectations. Data software group Snowflake SNOW, +0.73% is surging on better earnings news.

Tesla’s TSLA, -2.70% three-for-one stock split takes effect Thursday. Shares are up, but not everyone is excited.

GDP shrunk by a revised 0.6% in the second quarter and jobless claims fell to a one-month low of 243,000. The Jackson Hole gathering kicks off Thursday, but we’ll have to wait until Friday to hear from Fed’s Powell.

China added another $146 billion of stimulus to its troubled economy, this time zeroing in on infrastructure.

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The chart

“Copper is looking more bullish and might be the metal to favor for a more meaningful move into year-end,” says Mark Newton, head of technical strategy at Fundstrat, in a note to clients.

A “meaningful lift off July lows despite economic data that’s been less than stellar” marks a technically bullish move that should drive copper to near 380-386 in the near-term, said the strategist. “Then, following a minor pullback in September, I expect a much more meaningful rally which should test Spring 2022 highs.”

He likes buying Freeport McMoRan FCX, -3.13% on dips into late September as well as copper themed ETF.

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