BTIG says S&P 500 could be experiencing a ‘false breakout’, so be defensive heading into June.

As traders navigate the current stock market, there are growing concerns that the recent strength in the S & P 500 may be short-lived. According to BTIG’s chief market technician, Jonathan Krinsky, investors should consider adopting a defensive stance in the face of potential seasonal weakness. Krinsky warns that the S & P 500 could be experiencing a “false breakout,” particularly if it falls below the April high of 5,260. With the index closing below this level on Thursday, Krinsky advises keeping a close watch on the 5,180 to 5,200 range. The importance of defensive positioning is underscored by the fact that less than three-fourths of Russell 3000 stocks are trading above their 200-day moving averages, signaling a potential lack of market breadth. This is an issue that must be addressed before the current market leaders start to see selling pressure.

Krinsky’s analysis points to the unprecedented nature of the current bull market, with a historically low percentage of stocks trading above their 200-day moving averages. This situation, dating back to 1995, raises concerns about the sustainability of the market’s upward trajectory. As market leaders begin to show signs of weakness, it becomes imperative for investors to reassess their risk exposure and consider adopting a defensive posture to weather potential market turbulence. Krinsky emphasizes that the market needs to see a broader participation of strong stocks before the current leaders start to falter.

One of the key indicators to watch is the performance of software stocks, which struggled last week while New York Stock Exchange breadth remained positive. This disparity suggests that market breadth may be weakening, indicating a potential shift in market dynamics. Furthermore, historical data shows that June is typically a challenging month for the S & P 500, averaging a loss of around 0.7% over the past 15 years. With this in mind, Krinsky advises traders to prepare for potential downside risks and consider defensive strategies to protect their portfolios.

In light of these factors, traders should closely monitor the S & P 500’s performance in the coming weeks and assess whether the index can maintain its current levels. A failure to hold above the 5,260 level could be a signal of a false breakout and prompt a defensive response from traders. With market breadth showing signs of weakness and historical data pointing to a challenging month ahead, it’s essential for investors to stay vigilant and adapt their strategies accordingly. By taking a defensive approach and preparing for potential market downturns, traders can mitigate risks and position themselves for long-term success in an uncertain market environment.