Thomson Reuters
- Technical strategist Katie Stockton said that recent stock gains have been "explosive."
- Rallies like the one that's kicked off November are more common in bear market cycles, Stockton said.
- But falling bond yields should continue to provide a boost to stocks if the pullback persists.
Stocks are off to a red-hot start in November, and though equities' "explosive" gains may look more like what's seen in bear market cycles, falling bond yields should continue to provide a boost, technical analyst Katie Stockton said.
In an interview with CNBC Wednesday, Stockton, the founder of Fairlead Strategies, pointed out that the S&P 500 has already cleared its 50-day moving average, but resistance remains for equities.
"I actually wish the relief rally was a little less explosive, because those kinds of rallies are more common in bear market cycles, but we'll take what we have," Stockton said.
She sees a 4,180 support intact for the S&P 500, and noted that the index still faces "minor resistance" around 4,400.
"And above that, we start talking about a return or retest of the highs which are much more significant resistance of roughly 4,600," Stockton said.
Last week was the best five-day stretch of the year for stocks, and the S&P 500 on Tuesday hit its longest winning streak since November 2021. Forecasters have been split on what the latest rally for stocks could hold for the rest of the year though, with bulls eyeing a strong end to 2023, and the bears dismissing November's big start as nothing more than a bear market rally.
Morgan Stanley's Mike Wilson cautioned in a note earlier in the week that the recent stock gains probably won't last, as fundamental and technical drivers are still missing, and macro headwinds don't look promising.
The surge in equities, Wilson explained, is mostly a consequence of falling bond yields. JPMorgan's Marko Kolanovic echoed Wilson's sentiment in a note from the bank on Monday, telling investors stocks are still not attractive as the Fed stays committed to keeping rates higher for longer.
Stockton said Fairlead Strategies has been calling for a corrective phase in bond yields, which could continue to be a tailwind for stocks if it persists. Key government bond yields have pulled back sharply from 16-year highs in recent weeks.
She said signs flashing in the TLT Treasury ETF point to an extended period of bond yields correcting from recent highs.
"It's the first indication that we really have in our work...that this could be actually more of a prolonged corrective phase, something that lasts maybe nine to 12 months, as opposed to just through year-end, and that to me would be a tailwind to equities."