Remain “cautious” on the U.S. equities until the S&P 500 closes above the 4,231 level, says Jonathan Krinsky. He’s the Chief Market Technician at BTIG.
Why is that level of importance?
The benchmark index started the year at 4,796 and made a low of 3,666 in mid-June. Historically, Krinsky said on CNBC’s “Halftime Report”, a close above the “arithmetic mean” of the two (4,231 level) suggests the trend is changing in favour of the bulls.
Since 1950, we’ve never seen a market that’s gone down 20% or more on a closing basis, reclaim 50% of that decline, then go on to make a new cycle low. So, a close above 4,231, historically speaking, would be pretty significant.
He, however, questions if the SPX would indeed be able to crack that resistance, especially since it’s trading at above-average valuation in the face of a Fed that’s expected to remain hawkish after the strong jobs report last week.
A rally straight up is not on the cards
The U.S. economy is already in a “technical” recession and the impact of the recent rate hikes is yet to reflect on the equity market. That also paints a troubling picture for stocks moving forward.
So, even if the benchmark S&P 500 index does meaningfully break above the 4,231 level on a closing basis, Krinsky added, it wouldn’t mean an “all clear” for a rally straight up.
It doesn’t mean you just flip the switch and go all in on the long side. I think it just gives you a frame of reference to suggest maybe the June lows were the cycle lows and you want to get more constructive on pullbacks.
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