"Musical Chairs", Rising Correlations And Bad Breadth: Why BTIG Sees Stocks Retesting Recent Lows

Despite a plethora of calls that the market was "broadening" during the post-March chip/memory driven meltup, what we have actually observed since late June has been a game of "musical chairs", and as BTIG's Jonathan Krinsky writes in his latest note, money has sloshed around from Tech/AI into cyclical and value, but net-net the S&P is roughly the same level today as it was on June 2nd.

Meanwhile, breadth hasn't improved for the last couple of months, and the percent of Russell 3K names above their 50 DMA is now the lowest since early April. With the 5-DMA of put/call ratios near the lows of the year, and the fact we have yet to see an 80% NYSE downside volume day in nearly a year, Krinsky believes that complacency remains too high - with the VIX plumbing multi-year lows - and he continues to see downside risk.