According to BTIG’s head market technician, Jonathan Krinsky, it might be just what the doctor ordered in this bear market.
S&P 500’s worst-performing sectors since June 8 have been Energy (-20 percent), Utilities (12 percent) & Materials (14%). He said in a message to investors on Monday. Those were the three most active sectors as of June 7 – up 65 percent, 2 percent, and down 5 percent, respectively.
Our perspective was that the unwinding of the leadership groupings was crucial for a longer-lasting low. Even if this bear market has yet to reach its final bottom, the recent blow to ‘The Generals’ is likely enough for an end-quarter rally,” said Krinsky.
As a result of the Federal Reserve’s most significant interest rate increase in a decade, since March 2020, the S&P 500 has had its worst week. Since its record close of 4,796.56 on Jan. 3, 2022, the index has fallen by 23.39 percent, which is one technical definition of a bear market.
Krinsky predicts long-term/growth companies will outperform defensives and energy if the end-quarter rebound materializes. If you look at the “generals,” ARK Innovation ETF (ARKK), which follows the most liquid newly-listed businesses, and SPDR S&P Biotech ETF (XBI) didn’t record new lows, the “laggards” did, he added. The “generals” were selling down.
However, Krinsky also points to other indications that indicate the end of selling, such as the S&P 500’s expected to drop below 3,500 before “a final capitulation event.”
During a “required development to get to a bottom,” the proportion of Russell 3000 RUA, +0.40 percent businesses that were above their 200-day moving average plummeted to single digits.
The Cboe Volatility Index, now at -5.52 percent, is one item preventing a clean sweep. According to him, the “VIX curve never went close to inverting by 10 points, which has characterized every big bottom over the previous 15 years,” he said.