S&P 500 in danger of breaching support as tech momentum wanes, says analyst

“After 45 consecutive trading days above the [20-day moving average] the S&P 500 put in a few ugly days last week and now is poised to test some support levels. Initially the rising 50 DMA at 4406, but more meaningful support comes in at 4200-4300,” Krinsky said.

A retreat to 4200 would represent a roughly 9% drop from recent highs “which we think is reasonable even if this uptrend is set to continue later this year,” he added.

Krinksy said he remained cautious on the Nasdaq, whose big tech constituents have provided propulsion for the broader market’s near 17% gain for the year so far. The Invesco QQQ exchange traded fund
QQQ,
which tracks the Nasdaq 100, had just recorded a rare six-month winning streak but after last week’s retreat had broken its uptrend and was now displaying signs of weakening momentum.

Particularly concerning, Krinsky noted, was the latest pullback in Apple
AAPL,
-1.72%,
said the biggest company by market value. “Apple put in its worst weekly decline of the year, and definitively broke its YTD uptrend. It is now going to have a critical test of support in the 177-180 zone. Failure to hold that would suggest a very significant false breakout.”

However, as some big tech names may struggle there are signs that another sector may gather some steam.

“Energy is flat year-to-date, but starting to emerge from a multi-month base with weekly MACD [a trend-following momentum indicator] flipping to a buy signal. We like the set-up for energy here.
XLE
vs. QQQ is breaking its year-to-date downtrend, and E&P’s
XOP
are also breaking out.2

XLE is the Energy Select Sector SPDR ETF, and the XOP is the SPDR S&P Oil & Gas Exploration & Production ETF.