Other contributing factors include climbing oil prices and concerns over a potential slowdown in consumer spending as student loan payment moratoriums conclude. As October traditionally proves to be the most volatile month of the year, these added uncertainties are further dampening investor confidence.
Michael Kramer, founder of Mott Capital Management, emphasizes the significance of the chart, which showcases a “major trend line off the October lows”. Kramer also points out that the Nasdaq Composite has already broken with an upward trend, reinforcing a bearish outlook. Analyses of the chart indicate both a head-and-shoulders and diamond reversal pattern, commonly seen as indications that a market or asset will transition from bullish to bearish or break out in an opposite direction after a prolonged trend.
The Nasdaq Composite has experienced a notable decline of 6.7% in September, ranking it as the worst-performing month of 2023 so far. Kramer expresses his lack of optimism regarding the upcoming movement of the S&P 500 from this trend line, stating that a potential breach could result in a sharp drop back to 4,100.
To accurately gauge the situation, Kramer suggests monitoring the climbing 30-year Treasury yield (BX:TMUBMUSD30Y). A break above 4.8% could lead to further resistance levels being surpassed, potentially resulting in more significant stock declines. As an example, he highlights the Nasdaq-100 index (NDX), which may drop back to around 13,300 from its current level of 14,580 if this scenario unfolds.
Ultimately, market participants are closely watching these developments in anticipation of a possible showdown for the S&P 500.
Market Analysts Analyze Yield Curve Control Moves by the Bank of Japan
Market analysts have been closely observing the impact of recent yield curve control moves made by the Bank of Japan (BOJ). According to Kramer, an expert in the field, the 10-year Treasury yield (BX:TMUBMUSD10Y) faces a significant resistance level at 4.69%. However, once it surpasses this level, there will be no further resistance until it reaches 5.25%. The BOJ’s decision to alter its negative interest rate policy in July has triggered market stress, causing the 10-year JGB yield (BX:TMBMKJP-10Y) to rise to 1%.
Analysts have also noted the influence of global factors on the market. Kramer refers to it as a “global resent,” highlighting the U.K. 10-year gilt yield’s (BX:TMBMKGB-10Y) upward movement from a low of 3.08% to 4.5%. Kramer further suggests that the market perceives the Federal Reserve’s policy as not restrictive enough, contributing to the overall sentiment.
Adam Kobeissi from The Kobeissi Letter provides an alternative perspective on the S&P 500 chart. He acknowledges that if the “mother of all trend lines” in the S&P 500 breaks, it does not necessarily mean a market collapse. Instead, he sees the opposite scenario where the breakage presents an opportunity for the market to surge higher. Nonetheless, Kobeissi recognizes the current near-term trend of lower lows and lower highs in the S&P 500.
From a technical standpoint, Kobeissi identifies 4,200 as a crucial support level for the index, aligning with the high point reached in February 2023. He believes that the market is oversold and anticipates a potential bounce in the range of 4200-4250, which might have already initiated a rebound. If the index fails to break above 4335, it would create a lower high and pave the way for new lows. On the other hand, surpassing this level would open the door to reaching 4400.
Other market experts have shared their own perspectives on the charts, emphasizing the significance of the Fed’s preferred inflation gauge as the next major test for markets, scheduled for Friday.