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The sell-off that transpired Friday may not be done and could soon retest long-term support levels, according to BTIG. Stocks tumbled during the previous session, with the Dow Jones Industrial Average losing nearly 700 points, or more than 1.6%, after a hot jobs report exacerbated investor fears the Federal Reserve will not cut as much this year as it suggested it would. The S & P 500 and Nasdaq Composite each shed more than 1.5%. And, not only did all three major averages drop into negative territory for the year with that slide, but they also closed below their 50-day moving averages. When assets break below this mark, it signals the potential for more downside action in the near term. BTIG’s Jonathan Krinsky expects the 200-day moving average could also be tested later this quarter, even if there is a short bounce in the near future. While the long-term technical indicator remains intact, a break below the widely followed mark would mean the trend further out is in trouble as well. “S & P 500 got quite close to filling the election gap (5783) before finding its footing on Friday,” Krinsky wrote Sunday. “We think there should be a counter-trend bounce into next week, but we continue to see ‘unfinished business’ lower with a possible 200 DMA test (5572) later this quarter,” Krinsky added. A break below 5,572 in the S & P 500 represents a more than 4% drop from Friday’s close. The broader index was last 5% off its recent high. Krinsky is not the only technical strategist on the Street who sees the risk of a more sizable pullback this quarter, and urging caution even if there is a near-term bounce. Among their concerns include rising Treasury yields, with the 10-year moving back toward 5%, as well as weakening breadth. “Equity markets are approaching short-term oversold levels that should support a near-term counter-trend bounce,” Javed Mirza of Raymond James wrote. “However, five technical negatives remain in place (see discussion below) that suggest that an intermediate-term (1-3 month) corrective phase is taking hold on most North American equity indices,” including sell signals he said were triggered in the S & P 500 and Russell 2000. “This supports investors adopting a more defensive stance, in conjunction with previous market leaders showing signs of stalling,” Mirza wrote. Roth Capital’s JC O’Hara also said “longer term trends are still intact at the index level and thus should be given the benefit of the doubt but the internal washout is not over in our view, and we continue to recommend a more balanced/cautious approached to stocks.”
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