Charts show stocks could be in trouble as a new month of trading arrives, says Carter Worth

According to worthcharting.com, the May rally may be at risk due to two unfilled up gaps in the S&P 500 SPDR ETF. A sell-off to fill the May 9 gap at 567.50 would represent a 3.05% decline, while filling the April 23 gap at 529.30 would entail a 9.56% plunge, with both gaps potentially "in play" this summer.

Analysis

The recent May market rally is potentially under threat, according to technical analysis from worthcharting.com, which identifies two unfilled up gaps in the S&P 500 SPDR ETF (SPY) as a significant concern. These gaps, originating earlier this spring, are described as an "issue" that will more than likely need to be "answered," suggesting a potential market correction. A sell-off to fill the May 9 gap at the 567.50 level for SPY would entail a 3.05% decline from current market levels. A more severe scenario involves a drop to the April 23 unfilled gap at the 529.30 level, which would represent a substantial 9.56% plunge for the market. The analysis posits that both these gap-fill scenarios are "in play" for the summer trading period. This cautious technical outlook is corroborated by a "strongly negative" sentiment score of -0.7 and a "bearish" tone, with the SPY ticker itself registering a high negative sentiment of -0.8, indicating specific concern for the S&P 500 benchmark. The themes associated with this outlook are primarily "Market Technicals & Flows" and "Investor Sentiment & Positioning."

Key Decisions for Investors

• Investors should closely monitor the S&P 500 SPDR ETF (SPY) price action relative to the unfilled gap levels at 567.50 and 529.30, as these are highlighted technical points for a potential market pullback.
• Given the bearish technical analysis and strongly negative sentiment signals, consideration of defensive portfolio adjustments or hedging strategies may be prudent if the market trends towards these identified gap-fill targets.
• The analysis implies an increased probability of a market correction during the summer; therefore, heightened vigilance and risk assessment are warranted for equity exposures.