Technical anatomy of a drop in the markets: seasonality headwinds strike again

IGTV’s Jeremy Naylor caught up with technical analyst Ron Willian to look back to see what examples can be drawn to work out where the markets may be going.

This time around we have bond yields at near 16-year highs, inflation showing no signs of returning to target levels, and the rally mostly made up of a very narrow breadth.

We look at levels on the S&P 500, the dollar, bond yields, and oil.

(Video summary)

Understanding the patterns and trends in the stock market

Technical analysts are people who study the patterns and trends in the stock market. Right now, as we enter the last part of 2023, they are seeing some signs that the market might change soon.

In the past, September and October have usually been bad months for the market, and this year seems to be no different. The S&P 500, which represents the performance of the top 500 companies in the US, has been going up since October of last year. It has touched both high and low points along the way. Right now, it seems like there is support around the 4200 level, which means that it might be a good time to buy stocks at a lower price. However, there are other things to consider, like inflation and rising oil prices, that might keep the market from going up.

Another concern is that only a few big companies are making the market go up, which might mean that there could be a big drop in the future. September is usually a bad month for the market, and this often continues into October. Looking at the past, it seems like the market might be getting close to the top, but it might not crash completely. There are some levels to watch, like 4230 and 4200, that might show if the market will go back up. If it doesn't and reaches new lows, then the next level to watch is around 4130.

Tech and AI stocks dominate, stability in other sectors

It's also a worry that only certain types of stocks, like tech and AI companies, are really popular right now. The rest of the market has been pretty stable for a while.

People who trade stocks are also really interested in interest rates, which might be at their highest point soon. However, they might start going down soon, at least for a little while. But, inflation is expected to go back up in 2024, which might make things like oil and other natural resources look like a better investment.

Lastly, the US dollar's value might go down even more soon. This might continue unless it starts going back up past certain levels.

Overall, knowing the patterns in the stock market can help investors understand where things might go in the last part of the year.