It may be time to brace for a pullback.
On track for the best August performance since 1986, National Securities’ Art Hogan warns a key technical trend suggests the S&P 500’s record win streak is running into trouble.
“We’re overbought in the S&P 500 as an index in the short run,” the firm’s chief market strategist told CNBC’s “Trading Nation” on Friday. “It moved higher really quickly.”
Hogan uses a chart of the relative strength index, otherwise known as the RSI, to build his cautious case.
“When that sits around 50, you’re basically neutral. When it gets to 30, you’re oversold,” he said. “And, when you get to 60 or 70, you’re overbought. We’re currently at about 75 on the S&P 500. So, we’re clearly overbought.”
Hogan warns the damage could shave 5% to 10% off the S&P 500 in the September and October time frame.
“Nothing draconian, but certainly an opportunity to say there’s a better buying opportunity in front of us if we still have cash on the sidelines,” he said.
According to Hogan, a negative headline stemming from stalled efforts to pass a second coronavirus aid package to the presidential election to U.S. tensions with China could derail the S&P 500’s historic run.
The index, which is up 6% so far this month, closed on Friday above 3,500 for the first time ever. It’s now up 52% since the March 23 low and has gained almost 9% so far this year.
Hogan, who oversees $15 billion in assets, expects any weakness to be temporary.
“The S&P 500 is in a long-term secular bull market. I just think we’re overdo for a bit of consolidation,” he said. “We have a 3,600 target for the next 12 months on the S&P 500, which doesn’t seem like a lot. But I don’t think it’s going to be a straight line.”
He would use setbacks to target economically sensitive market groups — particularly financials, energy and industrials.
“If you’re long the S&P 500 right now, I would hold on. If you’re looking to put new money to work, I would wait for a bit of a pullback,” Hogan said. “There’s going to be a massive amount of economic activity that happens in 2021.”