A change of tone in the stock market has sparked concerns about the future of the S&P 500. As tech momentum begins to decline, the energy sector will need to step up and take the lead.
According to Jonathan Krinsky, chief market technician at BTIG, Apple, with its significant 7% weighting in the S&P 500, has broken its uptrend. In a note to clients, Krinsky highlighted that after 45 consecutive trading days above the 20-day moving average, the S&P 500 experienced a few rough days last week and is now approaching key support levels. The immediate support is at the rising 50 DMA at 4406, but more significant support lies in the 4200-4300 range.
Krinsky suggests that a retreat to 4200 would result in a roughly 9% drop from recent highs, which he believes could be reasonable even if the uptrend is set to continue later this year.
While Krinsky remains cautious about the Nasdaq, which has been propelled by big tech constituents and has seen a near 17% gain for the year so far, he is particularly concerned about Apple. The company had its worst weekly decline of the year and definitively broke its year-to-date uptrend. It is now facing a critical test of support in the 177-180 zone, and a failure to hold this level would suggest a significant false breakout.
However, amidst these concerns about big tech, there are signs of promise in another sector – energy. Although flat year-to-date, energy is starting to emerge from a multi-month base, with the weekly MACD flipping to a buy signal. This presents a favorable setup for energy. The Energy Select Sector SPDR ETF (XLE) is breaking its year-to-date downtrend, and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) is also breaking out.
Overall, the changing dynamics in the stock market are calling for a shift in focus from tech to energy. While tech falters, energy shows potential for growth and investment opportunities.