U.S. Stocks May Be Starting ‘Real Correction,’ CLSA’s Wood Says

By Patrick Rial

Nov. 2 (Bloomberg) -- U.S. equities may be headed lower as technical indicators point to weakness and as economic data disappoint investors hoping for a recovery, according to Christopher Wood, chief strategist at CLSA Ltd.

The Standard & Poor’s 500 Index dropped 2.8 percent to 1,036.19 on Oct. 30, and is down 5.6 percent from its peak for the year on Oct. 19. Declines have brought the benchmark below its 50-day exponential moving average, an indicator cited by Wood, which stands at 1,047.2, according to Bloomberg data.

An exponential moving average differs from a simple moving average by assigning more weight to recent data points. A drop below the 50-day moving average indicates to some investors that stocks may fall further.

“After Friday’s stock market action, the risk of the first real correction since the March bottom has risen significantly,” the strategist wrote in a report released today. “Fundamentally, it is also interesting that the American stock market has finally started to respond to disappointing consumption data.”

Wood predicted in 2003 that the explosion of mortgage securitization in the U.S. would lead to a boom and bust for the housing market. In September 2007, he began recommending investors sell short banks in the U.S. and Europe. The KBW Banks Index plunged 50 percent in 2008. Last week he recommended shorting the S&P 500 for investors looking to hedge their long exposure to Asian equities.

“If Asia does its normal thing and corrects more than the U.S., it will mark a great buying opportunity,” Wood said in his report.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.