Market Extra: The S&P 500 is brushing up against ‘the mother of all trend lines.’ What happens next could make or break the market.

by | Sep 29, 2023 | Stock Market

After what’s shaping up to the worst month for stocks so far this year, some investors have been zeroing in on a chart indicating a showdown is coming for the S&P 500
Here’s the chart shared by an stock market commentator on X by the name of Heisenberg — @Mr_Derivatives:


The 5.1% drop month to date for the S&P 500 follows a 1.7% drop in August, which ended five straight months of gains. Investors have been rattled by rising bond yields as prospects of interest rates staying higher into next year have notably taken down high-flying tech stocks. Climbing oil prices
and fears that consumer spending will slow, notably as student-loan payments moratoriums end, are other factors that have been eating into investor confidence. That’s as October tends to be the most volatile month of the year. Michael Kramer, Mott Capital Management founder, said the chart represents a “major trend line off the October lows,” noting that the Nasdaq Composite has already broken with a big uptrend, “and that is bearish, coupled with a head and shoulders and diamond reversal pattern.” The head-and-shoulders pattern often indicates a market or asset is about to go from bullish to bearish, while the diamond reversal pattern tends to indicate a trend breaking out in the other direction after an extended trend (more on that here). His chart shows how those patterns have been shaping the Nasdaq Composite
down 6.7% so far in September, also the worst month of 2023:

Mott Capital Management/Trading View

Kramer said he is not upbeat about the next big move off that trendline for the S&P 500. “If that breaks, we could see a sharp drop back to 4,100,” he said. The strategist said he’d watch closely the climbing 30-year Treasury yield
right now. “If 4.8% breaks, there is no resistance until 5.4%,” and that could portend bigger stock falls, such as the Nasdaq-100 index
dropping back to around 13,300 from the current 14,580. Here’s his chart:

Mott Capital Management/TradingView

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