An equal-weighted version of the S & P 500 has hit thresholds that have historically signaled trouble ahead, according to BTIG. Known as the SPW, the equal-weight S & P 500 measures performance by tracking all the stocks in the broad index at equal exposure. In the cap-weighed version, known in short as the SPX , more exposure is given to stocks with larger market caps. BTIG found that the SPW has traded more than 2% below its 200-day moving average, a key technical level watched by traders to gauge an asset's longer-term momentum. Meanwhile, the SPX is still trading above its 200-day average but has lost 2% over the past two months. That has only happened five times in the last three decades and sets an "ominous precedent," said Jonathan Krinsky, chief market technician at BTIG. Those past occurrences: August 1998, January 2000, September 2007, October 2018 and March 2020. "These stand out as ominous dates with all of them seeing meaningful downside in the weeks/months ahead," he said in a note to clients Sunday. That divergence in performance comes amid concerns among market participants that a group of megacap stocks known as the "Magnificent 7" have made the market appear stronger than it is. The cap-weighed SPX has climbed about 12.5% in 2023, while the equal-weight SPW has added around 1.5%. .SPX YTD mountain The cap-weighted S & P 500's ascent in 2023 Krinsky said the S & P 500 should test 4,200 points — which is 2.8% off its Friday close of 4,320.06 — if not lower. Stocks should see a "new phase" of difficulty in the fourth quarter as higher interest rates pressure the economy, he said. Bond yields should also have a rough patch, the market technician added. He said there's particular concern over stocks closely tied to consumer behavior such as retailers and restaurants. Since winners are now being sold along with losers, he said it's harder for investors to find safe corners of the market. The average analyst expects the cap-weighted index to finish 2023 at 4,392, according to a CNBC survey. That's about 1.7% higher than where the SPX finished during Friday's session. — CNBC's Michael Bloom contributed to this report.
