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Analyst warns of ‘Jenga top’ for ‘top-heavy’ stock market

By Ryan Vlastelica
Markets Reporter

Courtesy Everett Collection

The U.S. stock market isn’t far from records, but recent trading activity could have set the S&P 500 up for a steep decline if it falls below a key point.

According to John Kosar, chief market strategist at Asbury Research, the S&P 500 sits just 1% above a level that, if breached, could trigger a broad selloff.

Kosar’s analysis is based on recent trends in flows into exchange-traded funds. He noted massive inflows into funds tracking the S&P 500. Specifically, $11.8 billion has gone into the SPDR S&P 500 ETFSPY, +0.03%  over the past week, according to FactSet data. That influx expanded the ETF’s assets by about 5%; currently, there are nearly $283 billion in assets held in the fund, the first and largest ETF on the market.

“This represents a new surge of bullish conviction that is immediately positive for the broad market. However, the danger of that much asset expansion, that fast, is that it makes the market top-heavy—like a Jenga game with a lot of newly-added weight at the top,” Kosar wrote.

According to Kosar’s analysis, which referred specifically to the SPY, a decline below 2,020 “puts more than half of those newly-added assets into the red, and a decline below 2,886 puts all this new money into the red—which could trigger a broad market correction.”


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