U.S. stocks just touched their highest levels in two months. Yet, signs of a looming selloff are piling up, according to Jonathan Krinsky, chief technical strategist at BTIG.
The S&P 500 SPX and Russell 3000 RUA are both trading just shy of their highs from mid-February, but market breadth hasn’t recovered, as index gains over the past month have largely relied on megacap names like Microsoft Corp. MSFT and Apple Inc. AAPL helping to offset weakness in other areas of the market.
Over the last two weeks, the Dow Jones Industrial Average DJIA has outperformed the Nasdaq Composite COMP by the widest margin since the two-week period ending Dec 30, according to FactSet data. Low implied volatility is another issue for markets, Krinsky said. That can mean investors have gotten too complacent and markets may be heading for a selloff, analysts say.
Implied volatility gauges measure activity in option contracts linked to the S&P 500 to gauge how volatile traders expect markets to be over the coming days and weeks. Typically, implied volatility advances when U.S. stocks are falling. All of these factors support the notion that stocks could be headed for what Krinsky called the “reverse October playbook.”