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The Nasdaq -100 reached a record on Tuesday, but its fellow American indexes S&P 500, Dow Jones Industrial Average and Russell 2000 have failed to hit their own new marks, chief equity and derivatives strategist Julian Emanuel noted in a June 23 report. That signals the S&P 500 could fall to the lower end of its recent trading range in the near term, he said.
What’s more, a “sour patch” could develop if the Cboe Volatility Index, or VIX, moved above 45 — or if the S&P 500 fell below its recent bottom, he said. A key level for Emanuel is 2,965, the intraday low hit June 15. That would be a drop of over 5% from current levels. The index is now up about 40% from late-March lows.
The VIX closed June 23 at a two-week low of 31.37, compared with its lifetime average around 19.4 — signaling investors still see risks as elevated, Emanuel said.
Read more: Stock Valuations Hit a Record in ‘Everything Is Expensive’ Rally
Gains for U.S. stocks are more common during periods of low volatility or reversals after blowouts of the sort seen during March and April, Emanuel said. During the past three decades, VIX levels between 25 and 45 have been associated with large net declines for the S&P 500, he added.
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