Veteran strategist Tom DeMark, who correctly predicted this year’s February peak and April low, believes that U.S. stocks are likely headed for another major drop. DeMark, who has advised top investors like Paul Tudor Jones and Leon Cooperman, uses a system based on mathematical patterns and trend exhaustion in order to forecast market moves. He now sees several warning signs from technical indicators, weak sentiment, and timing models that suggest the S&P 500 (SPX) could fall below 4,835. That would mark a drop of over 20% from the February high and push the market into bear territory. “A top is imminent,” DeMark said.
Interestingly, his prediction comes while the market is rallying. The S&P 500 is on a nine-day winning streak, which would be its longest since 2004, and is close to wiping out losses caused by tariffs announced last month. But DeMark sees this rally as a sign of exhaustion, not strength. He said the 5,669 level, where the index is now trading, could be the top. DeMark uses a “countdown” method that looks at how closing prices compare to levels four days earlier. Patterns of nine counts indicate exhaustion, and the index reached its seventh count on Thursday. If there are two more highs, it could trigger a sell signal.
If that happens, DeMark believes weak technicals will likely force the S&P 500 lower, breaking below 4,835, which is its intraday low from April. He also explained that markets don’t usually hit a bottom on good news, such as positive trade updates. Instead, bottoms typically form when fear is high and investors give up. In addition, DeMark said that the recent rally came after stocks were oversold, but underneath the surface, technical conditions have stayed weak. As a result, without a major shakeout of sellers, he believes that stocks remain at risk of a big decline soon.
Is SPY a Buy Right Now?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on the SPDR S&P 500 ETF Trust (SPY) based on 41 Buys, 86 Holds, and seven Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average SPY price target of $649.39 per share implies 14.6% upside potential.
