October 26, 2023
Good morning,
Although stocks valiantly tested their all-important line (zone) of support several times in the past two weeks, S&P 500 Index (SPX) support at 4200 failed yesterday when the index closed at 4187, down -1.43% on the day. A chartist (one of many fields of study within technical analysis) would tell you that 4200 now becomes overhead resistance and last summer’s lows are now on the table of possibilities as the next area a major support. Last summer’s lows, in the area of 3600 on SPX, is -15% below where we are today. The SPX is already -8.6% off its highs of 4600 in July. What would it take economically to get SPX down to 3600, a -22% decline from its highs? Well, a recession would do it.
There were no bells rung and whistles blown yesterday, warning of the S&P’s failure to hold support. And, in fact, the SPX must stay below 4200 now for a few days and by a small percentage in order for the failure label to stick. But assuming the deed is done, as a risk manager, the risk profile for equities has changed, and that has to enter asset allocation calculus.
Futures are off another -.30% this morning, and I suspect, we will see a battle of bulls and bears around 4200 over the next few days. I’ll have more on the longer-term implications of yesterday’s market message on Monday, with a weekend write it.
Be well,
Mike
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