On Friday (8/26), stock market action saw the S&P 500 Index (SPX) fall 3.37%, marking its worst single-day decline since June 13. This action came with heavy selling pressure in growth-oriented names, with the more technology-heavy Nasdaq Composite Index falling by 3.94%, its worst decline since June 16. These broad-based declines came after a statement from Chairman Powell Friday morning that had a more hawkish tone than investors were seemingly anticipating, saying that more restrictive monetary policy may be needed for some time and that the Fed plans to “keep at it until the job is done” (source: FactSet). The S&P 500 closed at the low for the day (4057.66), which marked the second time this year. The prior instance came on March 31, which ended the March rally before the continued decline seen in the second quarter.

It is important to note that the current technical posture of the U.S. equity market is on a much stronger footing than we were at that time. Market participation indicators are in stronger positions, the U.S. Equities asset class has been gaining strength, and the U.S. Equity Core Percentile Rank remains elevated compared to other broad asset classes. However, this movement did violate notable support levels, so it is important to stay abreast of what levels to look toward moving forward.

The decline led the SPX to break a triple bottom at 4100 on the 20-point chart before falling through further support to the 4060 level by market close. That ended a streak of four consecutive buy signals on this chart, which is the longest streak the index had seen since the period from March to May 2021. Further support from here can be seen at 3920, which also corresponds to the current level of the bullish support line. Initial overhead resistance may now be found at 4200, with further resistance seen at the current rally high of 4320.

As we enter the September and October periods, which have historically been challenging months for equities, we are reminded that we are also heading into mid-term elections and the second year of a presidential cycle, which has generally been weak for the markets throughout the year but has historically reversed into positive territory for U.S. equities in the November/December timeframe.    

With corporate earnings and employment still high, the backdrop for a positive equity environment, barring any existential shock, is positive once we get beyond the September/October period. As of this posting, we see the S&P 500 trade within the support and resistance lines (3920 to 4320 on the SPX) during the weak period, with a break above the resistance line in November. A break below support on 3920 would challenge our view that the market is in a secular bull market within the current bear market environment.   

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