In a written analysis Thursday, BTIG analysts warned that the S&P 500’s recent robust gains may not last and that a decline could soon occur. Their assessment is based on historical patterns observed after significant increases in the index.
“The index has rallied significantly since the last consumer price index report, but what is important is the market’s response to that initial jump,” says BTIG. BTIG notes that today’s rally in the S&P 500 comes after a notable increase in the relative strength index and a market open above 0.80%, uncommon events since 1993.
BTIG acknowledges that historical outcomes after such a market signal have been varied, but highlights a worrying pattern for the short term. “Following the last seven instances of this signal, the SPY fell each time five days later, with an average decline of 1.26%,” they report.
Examining the highest and lowest five-day changes in that indicator, BTIG finds that the potential for gain is limited to a modest 1.21%, while the possibility of loss is much higher, with the largest drop being 4, 74%.
“Put simply, the immediate risk/reward scenario leans negative after this indicator,” concludes BTIG.
Analysts recognize the upcoming Federal Open Market Committee meeting as an event that could influence further market fluctuations and acknowledge Apple’s (AAPL) recent strong performance. However, they advise against hastily joining the uptrend, especially considering the limited range of stocks that contributed to the rally.
“Although the SPX rose more than 1%, market strength is not as robust as it appears, given that only 73% of the New York Stock Exchange’s trading volume comes from stocks that are rising in price.” , they comment. BTIG points out that the exceptional performance of the technology sector is surprising and proposes that, given the current situation, leadership from the financial sector would have been expected.
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