Craig Johnson, chief market technician at Piper Sandler, says all signs are pointing to a bullish end to 2023 and he has even laid out how the market is going to get there.
What To Know: The market has run higher to start the year to the surprise of most, but Johnson believes the rally still has legs. Although he expects a pullback to eventually come, the Piper Sandler technician said he thinks the overall trend is higher.
There is a lot of nervousness in the market as several indices are up against support lines, he said Wednesday on Benzinga’s “PreMarket Prep.” But despite the broader angst, Johnson expects a bounce.
“The reason I think it will hold is that we’ve got major downtrend reversals not only in the Dow, the S&P, the Russell, the Nasdaq … we’ve also seen on most of the popular averages, 50-day moving averages crossing back above 200-day moving averages, which reaffirms to us that the intermediate term trend for this market should be higher.”
His outlook for the year can be summarized by expectations for a “hop, a drop and a pop.” The “hop” stage still has another 5% to 7% to go, he said, adding that he expects the S&P 500 to climb to 4,200 to 4,300 before investors ses a “drop.”
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The drop is likely to be steep. Johnson is calling for a 10% pullback from the aforementioned levels, which would put the S&P 500 around 3,800 in a few months’ time.
He expects the drop to be spurred by the Federal Reserve. The Fed is likely to raise rates another 0.25% to 0.5%, which should be followed by a pullback in markets, he said.
“And then, I think into year end, we’ve got a pretty solid pop coming and I think that’s gonna push us to 4,625,” Johnson said.
Most macro firms are anticipating a recession in the second half of 2023, he said.
“We know from looking back at history that when you are told you’re in a recession, it always gets backdated 7.6 months … Every time, except for one, the market bottomed while you were in that recession window. That’s where the pop is going to come from,” Johnson said.
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See the full interview below:
SPY Price Action: The SPDR S&P 500 (NYSE:SPY) gained 0.78% Thursday, closing at $397.81, according to Benzinga Pro.
Photo: Gino Crescoli from Pixabay.
