S&P 500 Looks Vulnerable to MKM After Staging 2011-Style Rally

  • 20-day change exceeds 10 percent for first time in four years
  • Krinsky: `Rolling bear market' makes way into consumer stocks

This month’s rally in the Standard & Poor’s 500 Index went too far and too fast to be sustained, according to Jonathan Krinsky, MKM Partners LLC’s chief market technician.

The chart below shows how he drew this conclusion, presented in a report two days ago. He tracked the S&P 500’s rate of change for the previous 20 trading days, displayed in the lower panel.

Yesterday’s rate surpassed 10 percent for the first time since October 2011, when the S&P 500 was rebounding from its biggest slump of the decade. In the last two months of 2011, the index fell as much as 7.5 percent and ended up with a gain of just 0.3 percent.

Stocks may face a similar struggle this year “even if there is no significant pullback from here,” Krinsky wrote. The New York-based chart watcher cited a “rolling bear market” affecting consumer-related stocks after rippling through commodity, industrial, technology and health-care shares earlier in the year.

About 40 percent of stocks in the S&P 500 Consumer Discretionary Index were more than 20 percent below their 52-week highs as of yesterday, according to data compiled by Bloomberg. Those losses exceeded a common bear-market threshold, which Krinsky cited.

The declines contrast with the consumer-discretionary index’s 11 percent gain for the year through yesterday, the biggest among the S&P 500’s 10 primary industry groups. The category covers retailers, automakers, homebuilders, media companies and other industries that rely on discretionary income.

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