Retail investors could counter the much-anticipated correction: Alpha Tactics

• The major averages snapped their winning streak this past week, but had looked set to eke out small gains before some late selling in the last half hour of Friday's trading.
• For the week, the S&P 500 (SP500) (NYSEARCA:SPY) fell 0.14%, the Nasdaq Composite (COMP.IND) lost 0.25%, with the Nasdaq 100 (NASDAQ:QQQ) off 0.72%, and the Dow (DJI) (NYSEARCA:DIA) lost 0.46%.
• Wall Street strategists have been increasingly raising the possibility of a correction in the S&P, with so many investors all-in on equities.
• They argue that a pullback of around 10% could be the shakeout needed for stocks to start their next leg up.
• LPL Financial noted this week it sees "the consensus crowding into an optimistic corner," with:

1. AAII sentiment showing bulls outnumbering bears by the most since January 2018.
2. The CBOE 10-day and 20-day average put/call ratios above the 95th percentile "suggesting options markets are flashing a good deal of complacency."
3. BofA's fund managers surveys showing significant underweight positions in cash, "implying investors are all-in on the 'risk-on' environment."

• Cannacord's Tony Dwyer, who shifted to Neutral last week predicting a "power-on stall" for the market, still sees a pullback, although the strong economic data indicates it could be brief.
• BofA listed three technical indicators to watch that could signal an S&P correction, including a bearish divergence on the RSI, which moved into overbought territory last week for the first time since September.

• Goldman Sachs says U.S. economic growth is peaking this quarter and sticks to only 3% more upside for the S&P, with its year-end target at 4,300.
• Societe Generale's bearish strategist Albert Edwards cites Lance Roberts of Real Investment Advisors, who Edwards says is "no perma-bear" and who is investigating the growing calls for a correction.
• "Lance puts together an excellent aggregate sentiment indicator which shows US equity market sentiment is at maximum extreme greed," Edwards writes. "This overbullishness combines with extreme levels of overvaluation and a market that is very overbought. In his note Lance discusses where the market could fall back to and suggests the 200-day moving average (c. 3600) is a perfectly reasonable prospect."

• Roberts also posits that "given the market has become so extremely detached from the 200-day moving average (aka overbought) it might be wishful thinking to expect a correction to stop at the 50d mav as some leading strategists suggest."

• Retail to the rescue? While the market had a tough time this week bumping up against the all-time highs, there was little in the way of serious selling, with the S&P making up its capital-gains-tax losses the very next session.
• And the continued enthusiasm of retail investors could keep stocks on the front foot.
• DataTrek writes that the calls for a meaningful pullback need to acknowledge that retail investors are "very engaged with the current market" and "are 'better to buy', as old-time block traders used to say."
• Looking at a Google Trends U.S. query volume chart for the phrase "buy stocks" since 2018, interest is picking up again.

• While "we’re sympathetic to calls for a correction here, retail money flows may well limit just how much of a drawdown we really see," DataTrek says.
• The money still flowing consistently into equity funds also runs contrary to the idea of a sharp decline.
• U.S. equity funds saw inflows of $4.8B for the week ended April 14, with stocks getting inflows for a third-straight month.
• And among BofA clients, the latest survey showed the retail segment bucked the trend last week in the face of all-time highs.
• "Retail clients were the only buyers last week, while institutional and hedge fund clients sold," BofA strategists led by Jill Carey Hall wrote. "Retail clients have been buyers for the eighth straight week."