Episode summary
Fairlead's Katie Stockton on market selloff: Don't sell weakness, sell the strength
Summary
Katie Stockton said yesterday’s sharp market drop looked like a short-term exhaustion move, but not an unqualified positive. She noted that support levels have been breaking over the past week, and if the market closes the month at current levels, her technical work would show damage to monthly indicators that could matter more for Q1 than for year-end.
She argued this selloff is different from earlier fast drawdowns because credit spreads have worsened and one of her longer-term risk inputs has broken out. That, combined with elevated volatility and weaker breadth, suggests more risk in the system even though yields have moved lower and she is more neutral on rates and the dollar. She also said crude oil remains in a triangle pattern, with a breakout above about 103 per barrel on WTI potentially becoming another risk signal for the S&P 500.
Near term, Stockton expects a snapback rally and advised investors to “sell strength,” especially in stocks that have broken support rather than chasing weakness. She said a year-end finish above 8000 on the S&P is possible, helped by seasonal tailwinds and any relief from uncertainty, but she would not rule out more volatility over the next couple of days.
Key takeaways
- Stockton said the selloff was partly exhaustion, but it also broke enough support to damage monthly technicals if it persists through month-end.
- She sees this decline as different from prior fast dips because credit spreads have worsened and one long-term risk indicator has broken out.
- Her near-term trading advice is to sell strength, not weakness, especially in names that have already broken support.
- A WTI move above about 103 per barrel would, in her view, become another risk signal for the S&P 500.
- She would not rule out more volatility in the next couple of days, but expects a snapback rally and sees a possible year-end move above 8000 on the S&P 500.
Notable quotes
“THE DECLINE YESTERDAY, OBVIOUSLY A LOT OF SUPPORT LEVELS ARE BEING BROKEN OVER THE PAST WEEK OR SO”
“WHEN YOU GET THESE MASSIVE DOWN DAYS, IT DOES TEND TO BE EXHAUSTIVE IN THE SHORT TERM”
“CREDIT SPREADS AND HOW THEY ARE GETTING A LITTLE BIT WORRISOME”
“WE'VE BEEN RECOMMENDING IS DON'T SELL WEAKNESS SELL STRENGTH RIGHT”
“ONE OF THOSE LONGER TERM RISK INPUTS THAT WE TRACK. THAT DOES MAKE IT DIFFERENT THIS TIME”
How the episode opens
Company beat on the top and bottom lines. Results are deteriorating. Consumer credit quality seems to be what's what's amiss in this report.
Let's find out what the charts are telling us about yesterday's market sell off. Joining us now, Katie Stockton, founder and managing partner at Fairlead Strategies, as well as a cnbc contributor. And you guys look at guys and gals look at weird things.
And there can be damage done that indicates that there's a lot more work to do or there can be there can be the flush of a toilet where you feel like the worst is over. Can you what what do you think you saw?
It's a little bit of both. And I wouldn't call it price weird. I mean, it's really what matters most when it comes to investing.
The decline yesterday, obviously a lot of support levels are being broken over the past week or so. And yesterday was just an exacerbation of that. But when you get these massive down days, it does tend to be exhaustive in the short term.
We look back at just the percentage declines for the s&p 500 and nasdaq 100. The last time for the s&p 500 was right within a day or two of the april 25th low. And for the nasdaq 100, it was right at the march 20th low.
So interesting that the last big declines like this were at major lows. The difference now is that we really haven't seen much of a correction in terms of duration and even downside off of the highs. So that's what differentiates it.
That's not necessarily a positive or a negative. But if we do close the month at current levels, there will be damage to the monthly indicators that we track.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- market selloff
- market technicals
- buying strength
- stock market trends
- trading strategy
Companies and tickers mentioned
- Fairlead Strategies
Watch the episode
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
More from CNBC Squawk Box
-
Rep. John Moolenaar on investigating Nvidia's Jensen Huang: CCP influence raises multiple concerns -
Jensen Huang's affair has gone from a personal scandal to a corporate governance issue: Paul Argenti -
Tech selloff looks like a normal correction, says JPMorgan's Jack Caffrey -
Ed Yardeni on his 7,900 S&P 500 year-end target: 'Santa is coming' -
Kalshi CEO Tarek Mansour on the midterms, future of regulation and insider trading concerns -
Compute scarcity favors Big Tech after midterms, says The Information's Jessica Lessin
CNBC Squawk Box, this episode and its artwork belong to their owners. Octagon is not affiliated with the show; this page is an independent summary.
