Exchange traded funds indexed to the S&P 500 were down 3% in Wednesday’s sell-off and one technical analyst says the ETFs are heading for a test of the 2010 low.
“Traditional technical indicators remain oversold but these will not work in this environment. The market is effectively in an ‘orderly crash’ and the only reliable indication of a bottom will be a sentiment ‘fear’ extreme,” wrote Tarquin Coe at Investors Intelligence in a newsletter Wednesday. “As yet there is still too much complacency as many are adhering to the ‘buy the dip’ mantra. That worked for the rally off the 2009 lows but the climate is now more akin to the rout of 2008.”
S&P 500 ETFs rallied with stocks on Tuesday after the Federal Reserve pledged to stand pat on interest rates until mid-2013. However, SPDR S&P 500 ETF (NYSEArca: SPY) and iShares S&P 500 (NYSEArca: IVV) were back under the gun on Wednesday as the Eurozone debt crisis continued to heat up.
“We remain bearish and expect the index to fall down to the lows from last summer, around 1010 on the S&P 500,” Coe said. “That is the next level of significant support and as a result is magnetic, and drawing the trend south.”
Financial ETFs were among the hardest-hit sector funds on Wednesday as Citigroup (NYSE: C) and Bank of America (NYSE: BAC) both dropped over 5%. [Financial ETFs Slip]
The technical analyst sees Financial Select Sector SPDR Fund (NYSEArca: XLF) confirming a long-term bearish “double top” pattern.
The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.