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“I’m certainly more bearish than bullish at this point,” Keller said in a recent interview with Business Insider. “The situation I’m seeing now has a lot of similarities in terms of price action, breadth situation, price momentum, and last year’s July, August and September, which ended up being about a three-month decline. It’s very similar to the moon.” ”

The way the market works today is eerily similar to how it was eight months ago. After a period of increased volatility in March 2023, the S&P 500 rose virtually uninterrupted, hitting its all-time high on the last day of July. After that, stocks lost momentum, leading to what Keller calls a market correction.

History may repeat itself. The S&P 500 Index is struggling after hitting an all-time high in late March after a dream first quarter in which it rose 10.2% without falling much below 1-2 percentage points. Keller said the index could suffer a similar fate, falling 10% for several months.

If Keller’s chart is correct, that analogy may be entirely true. His downside target for the S&P 500 index is 4,700, which is a 10.3% decline from the high. This is the exact decline in stock prices from July 31st to October 27th, 2023. A drop of this magnitude would wipe out all of the market’s year-to-date stock gains. – date gain, and then some.

In the meantime, investors should keep an eye on the S&P 500’s two major technical support levels: 5,050 and 4,820, Keller said. The strategist said the former number is a “pivot point” as it is slightly below the level the market is currently trading. And 4,820 is the mark the index jumped when it broke out of its maintenance pattern, so it’s worth watching closely.

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Keller said the rebound was unpleasant but a sign of market health, adding that this downturn was premature. In his view, stocks need to cool down after an impressive rally, which is why this week’s market strength is likely a so-called dead cat bounce.

But it’s impossible to predict the market perfectly, so Keller isn’t afraid to admit he’s wrong. The chartmaster said it would be safe to say he was wrong if the S&P 500 index hits a new all-time high, but he believes that is highly unlikely in the coming weeks.

Keller explained that three catalysts are needed to create positive momentum in the market. These include first-quarter profits that continue to beat expectations, solid but non-inflationary economic indicators, and improving relations in the Middle East amid the deepening conflict between Israel and Iran.

Threading the needle is not impossible, but it seems unlikely. And given that stocks are trading at historically high valuations, it may make sense for investors to reduce their risk.

“If geopolitical tensions resolve, economic indicators align, and earnings are fairly strong, this market will probably retest its highs very quickly,” Keller said. “But the reason that’s not the case is because I think the market is starting to price in that less likely scenario. And again, I think that’s why I think the dominant trend is down rather than up right now. That’s why I think.

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Investors concerned about this market decline should add defensive stocks in sectors such as: public works and Daily necessitiessaid Keller.

Utilities were one of only two parts of the market to rise last month due to its risk-off nature. Meanwhile, the strategist noted that consumer staples are finally outpacing growth-oriented competitors in consumer discretion, which is a big change from last year.

“January, February and March were dominated by very unusual stocks and growth stocks,” Keller said. “But since then we have seen improvement in some other areas of the market. I would say April showed a dramatic change in character and we saw an improvement in the defensive sector.”

However, Keller believes it would be unwise to write off economically sensitive sectors such as: energy and material Because it offers significant exposure to high-demand commodities like oil.

Another sector that rose last month was energy, which has benefited greatly from higher oil prices due to geopolitical shifts. Keller cited a pair of exchange-traded funds (ETFs) that provide exposure to this group: the VanEck Oil Services ETF (OIH) and the SPDR S&P Oil and Gas Exploration and Production ETF (XOP).

In his filing, Keller said of the mining company: freeport mcmorran (FCX) is a solid stock due to its exposure to valuable commodities such as copper. Money. The yellow metal has been soaring, rising 18% in the past six months, including one month where it was up 7%. Keller said the VanEck Gold Miners ETF (GDX) is another attractive way to ride that rally.