A veteran chartmaster warns stocks will crash 11% from their peak as the remarkable market rally loses steam — but these 7 investments look destined for further gains

• US stocks have defied all odds this year, and the market rally only strengthened in July.
• But the S&P 500 stumbled in early August, and strategy chief David Keller sees more downside ahead.
• Here are seven investments that Keller says can defy a market downturn.

After nearly two months of nearly nonstop gains for the S&P 500, a long-time chartmaster warns that the market’s weakness in early August is just the beginning.

According to David Keller, the chief market strategist at StockCharts.com, in a recent interview with Insider, both historical precedent and chart patterns are working against US stocks right now.

Stocks suffered last year as interest rates rose due to multi-decade-high inflation, though Keller believes a secondary reason for the losses was anxiety about mid-term elections, which have historically weighed on stocks. The S&P 500 rallied after that headwind passed in October, as expected, and finished 2022 with a bang.

That post-midterm momentum often carries over into the first half of the following year, but Keller noted that in that scenario, second halves have historically been less fruitful for stocks. That’s why the strategy chief was taken aback by the S&P 500’s strong gains in June and July.

Brace for downside after a furious market rally

US stocks are unlikely to defy gravity and will therefore surrender some of their gains. “The third quarter is where you usually have pain on an average year, but it tends to happen more in a pre-election year,” Keller told Insider.

Keller continued, “So our general approach has been, limited upside for stocks after the run that we’ve had — particularly growth stocks, which have done the lion’s share of the gains in the first half of the year.”

According to the charts Keller examines, the market rally is nearing its end. Stocks have had a strong run, but they may struggle to make significant progress in the near term.

“The breadth indicators that we track are all overextended — basically suggesting that so many things are going up that at some point, you really need a reset,” Keller explained.

After nearly 10% gains in June and July, Keller believes the S&P 500 will likely fall to the 4,300 level, which was the high in August of last year. According to Keller, the index could then fall to its 200-day moving average of 4,100, representing an 11% drop from its recent high of 4,607.

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While the next two months are likely to be stressful for investors, the strategist believes a fourth-quarter rally could reduce losses and cause the S&P 500 to end the year near current levels.

“In the short term, this is where the market feels a lot more painful,” Keller explained. “However, we’re still most likely in an uptrend over the long term.” It’s a cyclical correction within a larger stock market rally.”

It’s worth noting that Keller has previously undervalued US stocks, as have nearly all of his peers. The chartmaster predicted a pullback in June while the S&P 500 still had gas in the tank in April, but the index held steady.

Keller, on the other hand, rarely misses. And, of all the predictions he made, the one he seemed most certain of was that the S&P 500 would not set a new record high until at least 2024.

“The charts are telling you that you’re overdue for a meaningful pullback, and I just don’t see a likely scenario where we have a meaningful pullback and then enough of a recovery into the end of the year to get us to new all-time highs,” Keller said.

7 investments with strong technical setups

Despite the fact that US stocks may be in for a rough patch, Keller expressed confidence in seven types of investments, particularly those related to economically sensitive parts of the market.

While the next two months are likely to be stressful for investors, the strategist believes a fourth-quarter rally could reduce losses and cause the S&P 500 to end the year near current levels.

“In the short term, this is where the market feels a lot more painful,” Keller explained. “However, we’re still most likely in an uptrend over the long term.” It’s a cyclical correction within a larger stock market rally.”

It’s worth noting that Keller has previously undervalued US stocks, as have nearly all of his peers. The chartmaster predicted a pullback in June while the S&P 500 still had gas in the tank in April, but the index held steady.

Keller, on the other hand, rarely misses. And, of all the predictions he made, the one he seemed most certain of was that the S&P 500 would not set a new record high until at least 2024.

“The charts are telling you that you’re overdue for a meaningful pullback, and I just don’t see a likely scenario where we have a meaningful pullback and then enough of a recovery into the end of the year to get us to new all-time highs,” Keller said.

7 investments with strong technical setups

Despite the fact that US stocks may be in for a rough patch, Keller expressed confidence in seven types of investments, particularly those related to economically sensitive parts of the market.