The S&P 500 200-day moving average looks vulnerable to us, says Fairlead's Katie Stockton
Speakers
Katie Stockton -- Founder and Managing Partner, Fairlead Strategies
— Fairlead Strategies founder
Summary
- The S&P 500's widely-watched 200-day moving average looks vulnerable; a breakdown would target the next support level approximately 6-7% lower, framing the current downside risk.
- Former market leaders and "darlings" like Amazon, NVIDIA, Palantir, JP Morgan, and Applovin now exhibit long-term momentum sell signals, suggesting they are in trading ranges or the early stages of bear cycles.
- This deterioration in former leadership makes a quick exit from the current market corrective phase unlikely; the correction is characterized as a slow grind lower rather than a swift, counter-trend move.
- The semiconductor sector, including names like Micron and Sandisk, has held its support level relatively well so far, but a loss of that support could trigger the next leg lower for the broader market.
- Crude oil has undergone a significant momentum shift, with its long-term trend indicator turning positive, suggesting a new uptrend is asserting itself, though it may be overdone in the short term.
- Similar positive momentum turnarounds are underway in other commodities, specifically named agricultural commodities like corn and wheat.
- Treasury yields are facing significant resistance at the 4.30-4.33% area for the 10-year; a breakout above this level would be a significant technical development.
- Bitcoin is seen as stabilizing within a cyclical downtrend; it is too early to call a bottom, but a low may be forming around 57,800.
- The current market environment favors a tactical approach of timing short-term entries and exits, with the earliest potential for counter-trend buy signals still about two weeks away.
Trade Ideas
The speaker stated the 200-day moving average for the S&P 500 "looks vulnerable," serves as potential support, and that a breakdown would target the next support level about 6-7% lower. The 200-day MA is a key gauge of the long-term trend and is widely followed, meaning its breach would signal a deterioration beyond a simple corrective phase and could trigger algorithmic selling. The vulnerability of this major support level, combined with the significant (~7%) projected downside to the next support, frames a clear downside risk, making the index an area to avoid until support is confirmed. The support test could be successful if the index "hangs around" the level without a decisive breakdown.
The speaker explicitly named Amazon, NVIDIA, Palantir, JP Morgan, and Applovin as former market leaders that now have "long term momentum sell signals." These signals indicate these stocks are now likely in trading ranges "at best, or even bear cycles," which deteriorates the market's leadership profile. The loss of momentum in these key, heavyweight stocks bodes poorly for a swift market recovery and makes them unattractive, broken leadership to be avoided. A swift, broad market reversal could reignite momentum in these names, but the current technical evidence strongly argues against it.
The speaker stated that a key monthly momentum indicator (MACD) is now positive for crude oil, a "big shift" indicating the trend has asserted itself as an uptrend. This follows earlier signs of downside exhaustion noted in January. The speaker contrasts this positive momentum shift with the negative shift seen in stocks like NVIDIA. The technical evidence points to a new, established uptrend for crude oil, warranting a constructive/long bias despite acknowledgment the move may be overdone near-term. The speaker noted the move is "probably overdone" in the short term, implying potential for a pullback.
The speaker characterized Bitcoin's price action as a "short-term stabilization within a cyclical downtrend" and stated it is "too early to suggest we bottomed." While a potential low may be forming around 57,800, the primary cyclical trend is still pointed down. The dominant downtrend remains intact, making the asset one to avoid until clearer evidence of a durable bottom and trend reversal emerges. The stabilization could evolve into a faster-than-expected reversal, with 57,800 marking the cycle low.
