BTIG: S&P 500 indicates negative short-term risk-reward outlook

Investing.com - According to a research note from BTIG on Wednesday, the S&P 500 reaction to the latest Consumer Price Index (CPI) data suggests a poor near-term risk-reward scenario, despite an impressive index move following the CPI release.

The SPDR® S&P 500 (NYSE:SPY) recorded an RSI above 67 and opened with a gap up of more than 0.80% on the day of the CPI release. This event is rather rare, having occurred only 12 times since 1993, with the most recent instance on June 5, 2020.

Analysis of these occurrences reveals mixed forward returns but with a noticeable negative bias in the short term. The last seven instances resulted in a negative trade for SPY five days later every time, with an average decrease of 1.26%.

Looking at the best and worst outcomes from these last seven instances, the highest gain over the following five days was 1.21%, while the worst loss was 4.74%. This data suggests that the immediate term risk-reward ratio leans towards the negative side after such a signal.

The note also highlighted that despite the S&P 500 being up over 1%, market breadth isn't as strong as it appears, with only 73% of NYSE volume in advancing stocks.

Interestingly, the best-performing sector of the day was Tech, a surprising development given the expectation for stronger performance from sectors like financials in the current market scenario.