The S&P 500 is on the verge of panic

Talk about industrial and materials stocks being as cold as a slab of frozen beef.

The industrial and materials sectors of the S&P 500 have tanked 6.49% and 7.47%, respectively, since August 16 according to research out from Sundial Capital Research. Currently, each industry is the worst sector of the S&P 500 - over this time span. The S&P 500 has basically flat ties to Aug. 16.

Sundial says the selling pressure is getting extreme, and data bares that out.

The percentage of industrial stocks holding below their moving average by 50 days has plunged below 20%, a level not seen since the height of COVID - 19 pandemic in early 2020. Fewer than 60% of industrial stocks have closed above the 200-day moving average earlier this week, indicating a severe loss in confidence among investors.

As we have referenced in the past, healthy markets and sectors typically hold above this threshold. It might quickly drop below 60% during uptrends, but it's usually a spike pattern that recovers quickly. When it doesn't, beware, the team at Sundial explains the dip below the 200 - day moving average.

There are likely many reasons for loss of confidence in the industrial patch.

For starters, global economic growth has slowed down since the early part of the rebound from the pandemic this year. At the beginning of an economic upswing, industrial stocks tend to perform well as companies invest in the capital equipment they probably held off ordering when times were weak.

Meanwhile, industrials continue to battle a host of consumer pressures ranging from labor shortages to raw material price inflation. The latest data on the dual impact of these financial struggles came via transport giant FedEx this week.

FedEx said its quarterly results were drilled by $450 million due to labor shortages alone, particularly at its ground segment. The company estimated a shocking 600,000 packages across the FedEx network are being rerouted because of the inability to find labor.

The impact of constrained labor markets remains the biggest issue facing our business as with many other companies around the world and was the key driver of our lower than expected results in the first quarter, FedEx COO Raj Subramaniam told analysts on an earnings call.

Sundial goes on to add that the selling of industrials is approaching panic levels. This may prove to be a long-term buying opportunity into the space, but Sundial cautions the choppiness is unlikely done in the near-term.

This sector is near a critical inflection point, or maybe it's already there. Investors have puked about as much as they would like to do in healthy market environments, at least when measured by internal breadth and momentum. Suppose we live in an environment similar to the past decade. In that case, we should see a relief rally in the coming weeks that allows oversold conditions to remain and alleviates long-term indicators like McClellan Summation Index to maintain mostly positive territory. A test of a higher probability would normally be a low probability for investors. Maybe it is too cute to expect markets like that to follow a precise playbook. Still, the overall suggestion is that buying conditions like this in Industrials might work longer-term as long as one is willing to suffer potentially high uncertainty in the weeks ahead, the researchers say.

Brian Sozzi is an anchor at Yahoo Finance and editor-at-large. Follow Sozzi on Twitter, BrianSozzi and LinkedIn.