• The stock market could face a 7% correction by mid-November, says Fundstrat’s Mark Newton.

• Investor complacency and weak seasonals could trigger decline, in accordance with Newton.

• He views any potential pullback as a “buy the dip” opportunity.

The stock market looks poised for a 7% correction by mid-November, in accordance with technical analyst Mark Newton of Fundstrat.

Newton told clients in a note on Thursday that he’s expecting the S&P 500 to see weakness heading into November as investor sentiment hits complacent levels just ahead of the overall election on November 5.

“While intermediate-term bullish these stays very much intact, it’s doubtful that US Equities proceed to push up into and post-election with none consolidation,” Newton said.

Newton said the potential correction he expects within the stock market is prone to be a “short-term correction only” and “not the beginning of a bigger decline,” playing into Fundstrat’s Tom Lee’s consistent message that investors should view any decline within the stock market as a “buy the dip” opportunity.

Newton is monitoring the 5,900 level on the S&P 500 as potential resistance for the index. The S&P 500 traded at around 5,850 on Friday.

“The problems with near-term complacency (as judged by low Equity put/call levels), waning breadth, poor seasonal trends and cyclical projections for November in addition to SPX’s largest sector, Technology, not performing well of late, are all reasons to be alert for possible trend change within the weeks to come back,” Newton explained.

One “key reason” Newton is popping bearish within the short-term is that the present rally in stocks that began in early August is 88 days long, which is strictly how long the April 19 to July 16 rally lasted before a sell-off materialized.

From a time perspective, that is “why this rally might ‘run out of steam,” Newton said.

Other areas of technical weakness that Newton is monitoring includes negative divergences in momentum as measured by the RSI and the moving average convergence divergence (MACD) indicators, an absence of bearish investors as measured by the AAII investor sentiment data, and seasonal cycles that show a peak within the stock market in mid-to-late October followed by a sell-off through November.

“This market has seemingly ‘dodged a bullet’ to date during considered one of the historically worst periods during most election years. Nonetheless, investors mustn’t take this to mean that the coast is evident for an interrupted rally higher all yr,” Newton said.

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