The S&P 500 is honing in on the “mother of all trendlines.” Depending on what happens next, the market could change or collapse.

The S&P 500’s 5.1% month-to-date decline follows a 1.7% decline in August, which ended a five-month streak of gains. Investors have been spooked by rising bond yields, especially as fast-rising tech stocks have fallen on expectations that interest rates will remain high next year.

Rise in crude oil prices

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Concerns that consumer spending will slow, particularly as the student loan grace period ends, are also hurting investor confidence. That’s because October tends to be the most volatile month of the year.

Michael Cramer, founder of Mott Capital Management, said the chart represents a “major trend line off the October lows” and the Nasdaq Composite Index has already broken a major uptrend. He pointed out, “Coupled with Head and Shoulders and Diamond, it is bearish.” Reversal pattern. ”

Head-and-shoulders patterns often indicate that a market or asset is about to transition from bullish to bearish, while diamond reversal patterns tend to indicate a tendency for a trend to extend and then break in another direction. (Click here for details).

His chart shows how these patterns are shaping the Nasdaq Composite Index, which is down 6.7% so far in September, also the worst month of 2023.

Cramer said he’s not optimistic about the next big move for the S&P 500 from its trend line, saying, “If it breaks down, it could drop all the way to 4,100.”

The strategist said he will be keeping an eye on the rise in the 30-year US Treasury yield BX:TMUBMUSD30Y for now. “If it falls below 4.8%, there will be no resistance until 5.4%,” and there is a possibility that there will be an even bigger decline in stocks, with the Nasdaq 100 index’s NDX returning from its current 14,580 to around 13,300. Here is his graph:

Cramer said the 10-year US Treasury yield BX:TMUBMUSD10Y has a major resistance level at 4.69%, but there is no resistance once it reaches 5.25%. He added that market stress really started to show when the Bank of Japan began changing its negative interest rate policy in July and allowed the 10-year government bond BX:TMBMKJP-10Y to rise to 1%. Ta. “It all started after the Bank of Japan meeting in July,” he said.

From July: Here’s what analysts are saying in response to the Bank of Japan’s move to control the yield curve.

He also pointed to movements abroad, calling it a “global rebellion.”British 10 Year Old Silver Coin

BX:TMBMKGB-10Y yield rose to 4.5% from a low of 3.08%. “Furthermore, I think the market believes the Fed’s policy is not restrictive enough,” Cramer said.

There may be a bright side to the S&P 500 chart, the “mother of all trendlines,” said Adam Kobisi of Kobisi Letters. “I would hesitate to say that if that trend line is broken, the entire market will collapse, but I see the opposite situation.

“If that trend line holds, we’ll be poised for the next big rally,” Kobeisi said. But he said the short-term trend is certainly down, with the S&P 500 index lowering its lows and lowering its highs.

In his view, 4,200, which coincides with the February 2023 high, is the most important support level for the index.

He believes that the technical market looks quite oversold, saying, “There could be some kind of pullback in the 4200-4250 range that may have started already yesterday, leading to 4335.” If the level is rejected, we expect it to form lower highs and head towards new lows.” Beyond that level, there are 4,400 possibilities,” Kobessi said.

Others commented on their own chart views.

The next big test for markets could come Friday with the Fed’s recommended inflation measure.