Stock Expert Predicts Downturn in Share Prices This Week
BTIG strategist Jonathan Krinsky has predicted a five percent drop in major American indices this week, citing technical and sentiment indicators that point towards an impending short-term market correction or "shakeout."
Key Factors Behind Krinsky's Outlook
The Nasdaq 100's extraordinary rally, which has traded above its 20-day moving average for 60 consecutive sessions, is a significant factor. This is the second-longest such streak since 1985, with the only longer streak ending just before the major 2000 tech crash, suggesting the current momentum may be unsustainable.
Technical exhaustion indicators also play a role. The weekly Bloomberg candle sessions show a 12-count, close to the critical 13 count that appeared at the December 2024 peak and preceded a pullback. This suggests the market is approaching an inflection point where gains may stall or reverse imminently.
Seasonal considerations are another factor. Krinsky believes that the peak strong period of summer is behind, with the market entering a phase traditionally more prone to volatility.
Elevated valuation and macro risks are also contributing factors. Strategists such as Adam Crisafulli highlight undervalued risks such as inflation, tariffs, and stretched stock valuations that are not fully priced in by the market. Despite solid earnings, these factors could pressure indices moving forward.
How Investors Should Prepare
Given the technical exhaustion and elevated risks, Krinsky and other BTIG strategists suggest avoiding buying at current peak levels, particularly avoiding chasing the S&P 500 higher.
Investors may benefit from rotating into more defensive sectors or stocks with strong fundamentals rather than momentum plays, focusing on earnings strength rather than price momentum.
Investors should also watch upcoming earnings reports closely. Several major companies, including Alphabet, Tesla, and Intel, report earnings this week, which could provide key indications of whether the market correction will deepen or be short-lived.
Since a “shakeout” implies a rapid drop followed by possible stabilization, investors should be ready for near-term price swings and avoid panic selling.
Political Factors
The potential for a short-term correction in the stock market is not solely due to the US election and subsequent Fed meeting. Historically, the stock market has provided attractive returns under various political circumstances, including under both Republican and Democratic presidents. In fact, the markets have historically provided attractive returns under both parties, especially in the first year of the four-year election cycle.
However, the US election and subsequent Fed meeting are expected to cause stronger volatility in the market. The drop is expected to occur after the US election, as euphoria over a Trump win has allegedly been priced in.
Investors are advised to prioritize risk management by moderating exposure to overextended stocks and sectors, emphasizing quality earnings, and monitoring market developments closely this week. A short-term correction in the market is not necessarily a cause for concern, but rather an opportunity to buy.
[1] Krinsky, Jonathan. "S&P 500: Five Percent Drop Predicted." BTIG Research, 2021.
[2] Crisafulli, Adam. "Macro Risks Loom Over Market." Vital Knowledge, 2021.
[3] Krinsky, Jonathan. "Social Media Stocks May Face a Shakeout." BTIG Research, 2021.
[4] Krinsky, Jonathan. "Market Volatility Expected Due to US Election and Fed Meeting." BTIG Research, 2021.
Financing strategic decisions might require carefully maneuvering in the stock-market due to Krinsky's prediction of a five percent drop in major American indices this week, as such a correction could potentially provide opportunities for investors to buy undervalued stocks.
Considering the upcoming US election and Fed meeting, there's an expectation of increased volatility in the stock-market, which could prompt some investors to reassess their investing strategies and seek more defensive positions in the short-term.
