Strategists at brokerage firm BTIG said the recent downturn in the S&P 500 moves it closer to a possible washout, though there is still some downside risk toward the 5200 level.
“Internals have weakened, but given the rotation into defensives, they remain far from what we typically see at tradable lows,” analysts said.
They also note that the shift from markets reacting to 'bad news is good' to 'bad news is bad' seems to be taking hold, as lower rates have coincided with declining stock prices recently.
Meanwhile, the small-cap Russell 2000 (IWM) is now on watch for a false breakout, having dropped below the $210 level.
“The chase into small-caps just before this recent slug of weak data has clearly exacerbated the move. We are also seeing multi-year relative lows in the equal-weight discretionary vs. equal-weight S&P, another sign of a weakening consumer landscape,” analysts continued.
On a positive note, early signs of capitulation in the VIX curve have emerged.
On Friday, the spot VIX versus the second month future inverted by more than 5 points, marking the largest such move since 2020.
BTIG points out that defensive sectors continue to break out both in absolute terms and relative to other sectors, with Real Estate Investment Trusts (REITs) remaining particularly compelling, along with Healthcare, which is also showing strong absolute and relative performance.
US stock futures fell sharply on Monday as the global stock selloff intensified amid fears that the Federal Reserve may be too late to support a slowing economy.
The decline was sparked by Friday's data showing a weakening US job market, triggering recession fears. Elevated valuations from the AI rally and rising tensions in the Middle East further contributed to the risk-off sentiment.