Krinsky sees downside risk in U.S. stocks despite today’s inflation data

S&P 500 is up 2.0% at writing after the U.S. Bureau of Labour Statistics said inflation was up less-than-expected in October.

Jonathan Krinsky shares his view on equities

Consumer prices remained flat for the month in October but were up 3.2% versus a year ago. In comparison, the Dow Jones estimate was for 3.3% and 0.1% increase, respectively.

Still, Jonathan Krinsky – the Chief Market Technician of BTIG sees significant downside risk ahead for stocks.

On Tuesday, Krinsky pointed out the recent, “extremely rare” divergence between Nasdaq 100 and Russell 2000 that tends to not bode well for the stock market.

The tech-heavy index ended last week a bit under 5% below its 52-week high while the Russell 2000 closed roughly that much “up” versus its 52-week low.

Bear sentiment seems to be gaining traction

The said divergence has been observed only seven times since 1985 and typically delivers a significant blow to both indices over the next eight weeks, as per Jonathan Krinsky.

This is often a sign of crowding as the NDX is a cap-weighed index of just 100 large-cap names, while the RTY is more equally weighted of 2K smaller companies.

The American Association of Individual Investors Bears sentiment recently posted its biggest one-week drop in about two decades as well, he added.

Core CPI (excluding food and energy) was at 4.0% for the year (lowest since 2021) and 0.2% for the month in October versus 4.1% and 0.3% expected, respectively.