Wednesday’s Losses Press the Issue

Posted by jbrumley on September 6, 2023 9:28 PM

With this past weekend’s Weekly Market Outlook we cautioned a pullback was possible, even if it wasn’t going to go anywhere. Things are proceeding according to that prospective plan. As was also noted as a possibility though, the weakness had a great chance of being short-lived. We’re seeing that too.

Take a look at the daily chart of the S&P 500 below. Following through on Friday’s reversal bar [remember, the market was closed on Monday for Labor Day], the index continued to fall on Tuesday and Wednesday. Now take a closer look at the chart. The index only had to kiss the 20-day moving average line (blue) at 4448 before it started to bounce back. It didn’t fight its way back above the 50-day moving average line (purple) at 4472, but it got most of the way back.

The daily chart of the NASDAQ Composite looks similar, although not identical. It peeled back to its 50-day moving average line (purple) on Wednesday, but didn’t slide below it. The composite seems to be finding technical support there.

So far it means nothing. It’s just something to take note of now. What happens from here, however, is huge. Either the bulls will continue to make their stand here and prevent the indices from continuing to fall, or they won’t. That test is here though… right now.

That’s not to suggest the answers will surface on Thursday. It could take a couple of days (and maybe even into next week) for the bulls and the bears to finish their current fight and get this ball rolling. A break below the 20-day lines could -- and likely will -- drive stocks to meaningfully lower lows. If instead both of the indices continue find technical floors where they are right now, it will eventually prompt a rekindling of the rally that got going in mid-August.

There is one factor working against stocks here (meaning pushing things in a bearish direction), however. That’s the calendar. September is typically a poor month for the market. Although there are exceptions, they’re pretty rare exceptions. The weakness usually lasts into early October too, although the rebound that gets going around then is just as reliable -- if not more so -- as September weakness.

Stay tuned.