CHIEF TECHNICAL ANALYST, BUFF DORMEIER, CMT^Ⓡ

Last week, the S&P 500 breached the lower threshold of its inside bar support, falling to 4320, just slightly below the intermediate support level at 4325. Moreover, the NYSE Advance-Decline Line also dipped below its uptrend line. The iShares Russell 2000 ETF, representing the troops, led the retreat with a -3.78% drop.  The NDX 100, representing the generals, wasn’t far behind, experiencing a -3.30% decline. From their peak in late July, the troops have now fallen over 10%.

Despite the breadth and price action being rather destructive for the week, it’s worth noting that the accompanying volume was below average, with S&P 500 Total Capital Weighted Volume hovering just over $80 billion. Downside Capital Weighted Volume was above average at $56 billion. Although larger than usual, the downside volume was slightly less than the previous week, even though the S&P 500’s price index dropped more than the previous week. These actions suggests that volume may not currently be supporting the price decline.

Looking ahead, for our positive fourth-quarter outlook to materialize as earlier anticipated, it may be imperative that the S&P 500 remains above the major support level at 4200. Perhaps even more importantly, S&P 500 Capital Weighted Volume and Capital Weighted Dollar Volume likely need to stay above their August lows to sustain solid uptrends. In summary, from a price and breadth perspective, the intermediate outlook may be becoming increasingly worrisome. However, when viewed from a volume and supply-demand standpoint, the bullish scenario appears to remain firmly intact.

Grace and peace my friends,

BUFF DORMEIER, CMT®

Updated: 9/25/2023

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