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Brace For A Double Whammy In The Stock Market

 

And now that U.S. stocks have broken a historic string of weekly losses, market analysts are looking to technical indicators to determine where the “danger zone” for equities might lie.

The ‘danger zone’

According to Jonathan Krinsky, a market technician at BTIG, the new “danger zone” for U.S. stocks corresponds roughly with the 50-day moving average for the S&P 500 SPX, -0.59%, which is presently right around 4,275 although Krinsky believes equities would meet resistance slightly earlier at around 4,250, which is the top end of the “summer chop” range he anticipates.

Reaching the 50-day moving average would be quite a feat in itself, seeing it would represent a roughly 12% rally off the bear-market lows just above 3,800 from which the S&P 500 bounced earlier this month, while the Dow bottomed out just north of 30,600 DJIA, -0.52%.

A counter-cyclical rally

Interestingly, Krinsky pointed to a overstretched positioning in the best-performing sectors for stocks (i.e. energy), claiming that “the strategy of buying winners and selling losers is coming off the most extreme level in over 13 years.” Because of this, Krinsky expects a swift bout of counter-cyclical reversion – where technology stocks lead markets higher, a dynamic that has already been witnessed during the past week – to be the near-term catalyst for a rebound in stocks.

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