BTIG said traders should consider taking defensive action as the S&P 500’s decline may only be temporary and could soon face more seasonal weakness. Jonathan Krinsky, the firm’s chief market technician, said a “false breakout” is possible for the S&P 500, especially if the index falls below its April high of 5,260. From that point on, he said, investors should take a defensive stance and watch whether the index remains in a range of 5,180 to 5,200. The S&P 500 closed at 5,277.51 points on Friday after closing below 5,260 points on Thursday. “Regardless, a more defensive stance seems right as we enter a seasonally weak June,” Klinsky told clients in a note on Sunday. Klinsky said that given the Defensive positioning is particularly important after the S&P 500 failed to hold above 5,260 ahead of Friday’s month-end rally. “The longer the price stays below it, the more likely it is that it will be a false breakout,” he said. Klinsky said the current bull market is “unprecedented,” with less than three-quarters of the Russell 3000 index of stocks are trading above their respective 200-day moving averages. Market wisdom says that a stock trading above that average indicates it’s in an uptrend, so a low number of stocks trading above the 200-day moving average can be a bad sign. Krinsky said that since 1995, this is the second-longest stretch in a bull market with such a low percentage of stocks trading above the 200-day moving average. He said it was “the longest yet” for a record market. Ultimately, Klinsky said it’s all about the number of strong stocks in the market needing to expand, and that must be done before the current market leaders “succumb” to the sell-off. The deterioration may have started last week, with software stocks struggling while the NYSE stock breadth performed well heading into the weekend. Klinsky also emphasized that June was the second-worst month for the S&P 500 on average over the past 15 years, with a typical decline of about 0.7%. He said this adds further reason to strengthen defenses.
