Will S&P 500 Face a 5% Correction? BTIG: A Setup Opportunity After Breaking Below 6100
We have learned from WisdomTree that the recent rally in the S&P 500 index has come to an end, and BTIG's technical strategist Jonathan Krimmelski warned clients on Sunday that market volatility may feature a "slow accumulation followed by sudden explosion" pattern as seasonal headwinds form pressure on the market.
He specifically pointed out in his client report that the S&P 500 index closed below its 20-day moving average, a key technical support level, for the first time in several weeks. Considering that the index lacked substantive price cushions before reaching its year-to-date high, he believes the market may face rapid correction risks.
Last Friday, investors' concerns about economic prospects were heightened after Trump's government announced new trade policies and unexpected weakness in nonfarm employment data, causing the S&P 500 index to fall by around 1.6% over a single day, closing at 6238.01.
Krimmelski reminded clients through historical data to be cautious of risks: just a year ago, the S&P 500 index experienced an 8% correction from its peak in the first three trading days of August. He analyzed that if this round of adjustment can quickly recover the 6100 threshold, corresponding to a 5% decline from the high point or presenting an initial buying opportunity.
Krimmelski summarized five key observations for the August market:
One: Seasonal weakness period arrives, typically from early August to early October, which is usually considered the weakest stage of the year, with a significantly increased probability of correction;
Two: Software stocks and semiconductor stocks are diverging, with the IGV index tracking software lagging behind the SMH.US ETF by approximately 17% since May. However, this ratio has approached technical support levels, combining with the historical rule that software outperforms semiconductors in August for five years and nine times over nearly 13 years, potentially presenting mean reversion opportunities;
Three: The public utility sector continues to strengthen, with the SPDR XLU.US reaching a new high last week, further highlighting its defensive attributes;
Four: The homebuilding industry benefits from falling interest rates, unless economic data suddenly worsens, this trend may continue;
Five: Restaurant and trucking stocks are under pressure, with Bloomin' Brands (BLMN.US), Dutch Bros (BROS.US), Denny's (DENN.US), and Jack in the Box (JACK.US) all failing to break out of their summer highs, relative strength indicators falling to multi-year lows. The trucking sector has even set new lows.
In general, Krimmelski maintains a cautious but opportunistic strategy: while the S&P 500 index may potentially drop below 6100 in the short term, if historical patterns repeat, adjustments or corrections could bring setup windows for configuration. The recommended portfolio allocation is to tilt towards software, public utilities, and homebuilding sectors, while avoiding weak areas such as restaurants, trucking stocks, etc.