The stock market rally of 2023 has been criticized by more than a few for being concentrated in just a few big tech companies.
But now that a few other stragglers have joined of late, that’s actually a cause for concern for investors, said Jonathan Krinsky, managing director and chief market technician at BTIG.
He notes that an index of meme stocks, notable for their popularity among investors fueled by social media, has gained 10% over the last three days, versus a 1.6% drop by consumer staples as investors back away from perceived safer haven stocks. GameStop
GME,
AMC Entertainment
AMC,
and now bankrupt Bed Bath & Beyond
BBBYQ,
are some of the biggest meme names of recent years.
“Over the last 18 months, when the MEME index has outperformed the Consumer Staples Select Sector
XLP,
by 10% or more over a three-day period, the SPX [S&P 500 index]
SPX,
was lower three and five days later 12 of 17 times for an average return of -0.83% and -0.68%, respectively,” he told clients in a note published Tuesday.
Meanwhile, 20-day performance had an average and median return of -1.45% and -1.6% respectively. He said the last time this happened was the 15 of February when the S&P 500 fell 3.62% over the next three days after this signal.
“Bottom line: It’s a double-edged sword when we start seeing some of the lower-quality names rally. Obviously, it’s encouraging to see breadth broaden out, and
this includes the high shorted names and low quality,” said Krinsky.
“When we see a surge of this magnitude, however, especially relative to a defensive group like consumer staples, it often indicates a chase for what hasn’t moved and can move the most, and this often is the tail end of the move, as the numbers in the table below indicate,” he said.
Read: Why investors gamble on shares of bankrupt companies — Bed Bath & Beyond, for example
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