June 22, 2023
Good morning,
What looked like a possibility on Tuesday morning is now confirmed; the markets are in profit-taking mode since last week’s Fed meeting. It’s natural. Markets wax and wane, they trend, and they revert to their mean… constantly. So far, the selling has been very mild and centered on stocks with the largest recent gains – the classic profit-taking characteristic. The S&P 500 Index (SPX), for example, is off -1.3% since last Thursday, and the tech heavy NASDAQ is off -2.1% by comparison. Mild is the operative word for this market correction so far.
An old school tape reader (a euphemism for a market technician) will tell you that resistance, once violated, becomes support. And the stronger the resistance beforehand, the stronger the support afterwards. 4,200 on the SPX was a major line of resistance following last October’s low (see Bloomberg S&P 500 Chart Below). It is now a significant line of support. It is not a coincidence that the 50-dma (day-moving-average) is also at 4200 now (another supportive data point). It’s also worth noting that SPX could sell off another ~4% to 4,200 without registering much technical damage.
So, a 5% sell-off on the S&P 500 wouldn’t get that much attention. But a break below 4,200 and sirens will blare.

Be well,
Mike