US stocks have gotten crushed this year and even briefly slipped into bear market territory as investors grapple with economic uncertainty and a potential trade war.
However, veteran technical analyst David Keller worries that the worst may still be to come.
“At this point, I think we’re guilty until proven innocent,” said Keller, the founder and chief strategist at Sierra Alpha Research, in a recent interview with Business Insider. “I haven’t seen enough to suggest a meaningful bottom yet.”
Investors who’ve listened to Keller lately are thankful. Three months ago, the chartmaster cautioned that the market rally was dicey and had scarce room to run after several strong years.
“It didn’t seem to be a scenario where we could make significant progress to the upside,” Keller said of the market backdrop in early 2025. “And then what happened from February into late March, early April is — everything started deteriorating.”
Like almost everyone in markets, Keller was caught off guard by the severity and suddenness of the early April sell-off following President Donald Trump’s “Liberation Day” tariff announcements.
But there were warning signs, including weakening momentum, broken technical support levels, and lower market breadth, Keller said. Some of those metrics have since improved, but not all.
Why this sell-off is justified
Instead of sharing his views on trade policy like countless other strategists, economists, and political pundits, Keller is sticking to what he does best: breaking down technical market trends.
When asked whether investors went overboard by selling stocks, the strategy chief said he didn’t think so. A key reason is that stock valuations have fallen, but are still elevated.
“I don’t think they’re so reasonable now that you’d be silly not to just buy, based on valuations,” Keller said. “I don’t think we’re there yet.”
Equities ultimately rise or fall based on earnings expectations, whether the company generates profits now or in the distant future. The lack of clarity about trade policy will weigh on spending by consumers and businesses, which may make growth slow for the economy — and earnings.
“Given tariffs and given the uncertainty and what they need to plan for it, I think we see a lot of negative guidance, negative projections,” Keller said. “And as a result, I think markets are still overvalued, given those lowered expectations that are probably going to continue to come down.”
Assuming that markets are still overvalued, Keller said the key level to watch for the S&P 500 is 4,850, which is just above its 52-week-low of 4,835 set during the worst of the April downturn. That’s about 8% below stocks closed on Wednesday.
“I would be amazed if we don’t find some support there,” Keller said. “And if we break that, then we have to think about further downside targets. But for now, I think that’s an initial floor.”
Conversely, Keller’s charts indicate that the S&P 500 could rise to 5,500 and 5,750, which is the market’s 200-day moving average. That suggests that the index has just 4.5% to 9.5% upside.
“Until or unless the S&P can reclaim the 200-day, I think you treat this as a bearish market with a lot of noise below the 200-day,” Keller said.
There are some encouraging signs for investors, including that short-term breadth is improving, as Keller outlined in a recent blog post. Many stocks are enjoying a bounce, though the moves might not be sustainable since few are in primary uptrends over their 200-day moving averages.
One scary-sounding technical signal that caught traders’ eye is the so-called “death cross,” where the S&P 500 and Nasdaq Composite’s short-term 50-day moving averages sank below the longer-term 200-day moving averages. However, that’s not why Keller is skeptical right now.
“If you look at a longer period of time in a trending market, it tests very well,” Keller said of that death cross signal. “Where it does not do particularly well is if you have a choppy, noisy, sideways market, because you’ll get a bunch of false signals as it kind of rotates up and down.”
The bigger takeaway for investors is that the general slope of the market is negative, and unless there’s a 180-degree pivot on trade policy or economic and earnings results surprise the market, Keller expects the path of least resistance to be lower.
Where to invest: Groceries, guns, gold
When Keller was apprehensive about stocks earlier this year, his hesitation centered on the view that the mega-cap growth stocks would come back to the pack after leading for years.
Sure enough, large caps have taken a huge hit recently, though small and midsize stocks have also struggled mightily. High-fliers like Tesla and Meta are among the biggest losers.
“The other big theme that we’ve observed over the last couple months is just a significant leadership rotation,” Keller said. “We went from the Magnificent Seven dominating in 2024 to those being some of the weaker charts you could find in 2025.”
All but two S&P 500 sectors are in negative territory this year, and the two leaders are defensive stalwarts: consumer staples and utilities. The rotation toward those safe havens that are less affected by economic struggles implies that investors are positioning for a recession.
“The types of stocks that are doing well — even in this short bounce off of the April low — are not the types of stocks that would make me confident in a significant recovery,” Keller said.
Those looking for refuge in this down market should follow a catchy, memorable three-part motto, Keller said: “groceries, guns, and gold.”
Kroger (KR) is a clear example of a stock in the consumer staples sector that has soared lately. The supermarket giant is less reliant on trade than other retailers and will see resilient demand in any economic backdrop. In fact, a recession may boost sales as shoppers eat out less often.
“It’s just in a consistent uptrend,” Keller said. “You would not know that the world is falling apart around it.”
Northrop Grumman (NOC) is a military contractor that benefits from geopolitical uncertainty, Keller remarked, which makes it a buffer against rising tensions. It’s also one of the firms that could see increased government spending during the DOGE era.
Outside of equities, Keller spotlighted gold, though investors could get exposure to it through the VanEck Gold Miners ETF (GDX). The yellow metal has been roaring in the last year, and while Keller said it could be out ahead of its skis in the short term, it looks like a strong hedge.
“For things like gold — pretty extended, making new all-time highs, overbought — waiting for a pullback makes a ton of sense,” Keller said.