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Investing.com -- The S&P 500 slid to 5,778 on Tuesday, coming close to its 200-day moving average (DMA). While this test of the DMA “was close enough for a tactical rally,” it is “unlikely to be the final low for this pullback,” according to BTIG’s chief market technician Jonathan Krinsky.
The index recovered the next day to 5,842.
The STOXX 600 (SXXP) index has not outperformed the S&P 500 in a calendar year where both finished positive since 2012, marking a 13-year gap.
So far this year, European markets have gained between 7% and 16%, depending on the index, while the S&P 500 is down 0.7% year-to-date. Meanwhile, the Hang Seng has risen more than 21% since the start of the year.
“Many investors are simply not prepared for a sustained period of global outperformance, yet we think that’s what 2025 will continue to deliver,” Krinsky said in a note.
According to him, the Tuesday pullback “while uncomfortable, is a feature not a bug of tactical lows.”
On August 5th, 6th, and 7th, the market saw intraday declines of 1.37% or more despite having already bottomed on August 5th. Krinsky said this pattern reinforces the case for a tactical low.
The strategist also highlighted that 17% of Russell 3000 components hit a 52-week low on Tuesday, the highest level since late 2022.
While this type of sharp decline can support a short-term bounce, he believes a final low will likely require "lower lows" accompanied by a positive breadth divergence.
Meanwhile, the put/call ratios remain muted. Although Tuesday saw the highest number of puts traded since March 2023—one of the largest on record—a significant volume of calls kept the ratio subdued. A more pronounced spike in the put/call ratio may be necessary to confirm a final low.
On the global front, Krinsky highlighted that the all-world index has broken its multi-year downtrend relative to the S&P 500, with continued strength in Europe and Hong Kong. However, he sees Japan as more vulnerable in the current market environment.