Nasdaq 100 momentum unmatched since 1999 so brace for a shakeout, says BTIG

BTIG warns of an impending market shakeout, citing the Nasdaq 100's 60-day streak without closing below its 20-day moving average—the second-longest in its history, a momentum last seen before the 1999 dot-com bust. Despite major indices reaching record highs, technical indicators suggest turbulence is due, particularly for risky assets like the ARK Innovation ETF, with a potential rotation into defensive sectors such as utilities.

Analysis

BTIG technical analysis indicates a high probability of a near-term market shakeout, based on the Nasdaq 100 trading for 60 consecutive days without closing below its 20-day moving average. This represents the second-longest such streak since 1985, with the longest ending just before the 1999 dot-com bust. While the analyst, Jonathan Krinsky, does not forecast a major market peak, he anticipates significant turbulence, contrasting with the current record highs in the S&P 500 and Nasdaq Composite and a notably low CBOE Volatility Index. The analysis flags high-risk assets as particularly vulnerable, citing the ARK Innovation ETF (ARKK) as an example of being overextended, having rallied over 12% this month to trade 38% above its 100-day moving average. Consequently, BTIG suggests a potential defensive rotation, identifying the Utilities Select Sector SPDR Fund (XLU) as having "prebreakout potential" to the low $90s from its current level around $84.

Key Decisions for Investors

• Investors should consider trimming exposure to overextended technology-centric indices and high-beta growth assets, given the technical warning signs of an impending pullback.
• A tactical rotation into defensive sectors may be prudent; specifically, the utilities sector, as exemplified by the Utilities Select Sector SPDR Fund (XLU), is highlighted for potential upside.
• Monitor positions in highly speculative assets like the ARK Innovation ETF (ARKK), which has been identified as being significantly stretched and overdue for a correction.
• With the CBOE Volatility Index at low levels, be prepared for a potential spike in market volatility that could precede or accompany the anticipated shakeout.