IT’S TIME TO WATCH THE CHARTS

Technical analysis doesn’t get a lot of attention. Some investors even ignore it completely. But chartists are getting a little more love as market participants look for reasons behind the recent pullback in equity markets.

Jan Loeys, chief market strategist at JPMorgan Chase & Co., noted that the firm’s technical analysts have been warning of an impending 5% to 10% correction for the past month. So far, that view is playing out rather accurately.

U.S. stocks have already fallen about 4% from their peak, so their forecasts call for several percentage points of further weakness. However, the analysts also see a subsequent rally as part of the longterm bull market.

Mr. Loeys and his team found that four other markets — small caps, the U.S. dollar index inversed, commodities and U.S. high yield — have also had a similar correction. Yet they have stabilized in the past month and in some cases are starting to move up.

“The great majority of investors we have been talking to over the past two weeks also see the market in technical terms now and are looking for re-entry points,” Mr. Loeys said in a research note. “The conclusion to us is that we are in a typical technical correction in risk markets.…”

He also pointed out that the rebound following these types of corrections can be fast since the declines are tough to trade for asset allocators.