The Fed remains cautious about inflation not slowing until the economy and labor markets cool. Investors worry about interest rates returning to normal via higher rates. Bond yield hits the highest level since 2008, adding pressure to borrowing costs. Although consumers are still flush with cash, consumer credit and debt delinquencies are rising. The percentage of U.S. consumer balances moving from current to 30-days-plus delinquent has risen.
Rising bond yields, high stock valuations, rising commodity prices, and geopolitical concerns have triggered the August stock market correction. The S&P 500 Index (SPX) declined to a five-week low as weaker-than-expected data from China and stronger-than-expected U.S. retail sales jumped 0.7% in July from June, warning of continued inflationary pressures and higher rates.
The 10-year Treasury yield (TNX – 4.258%) nears its Oct 2022 high (4.333%), its highest close since Jun 2008 (4.22%). A TNX breakout above 4.333% will further pressure stocks, specifically growth and technology names. The S&P Implied Volatility (VIX – 16.78) is also nearing pivotal resistance at 19-21, coinciding with the 200-day ma and May 2023 highs. A breakout warns of the start of higher market volatility and increasing fear in the stock market.
Technical weakness has developed in the past few weeks as SPX declined 4.42% from its 7/28/23 high (4,607.07). Today’s violation of the 50-day ma (4,449.15) warns of further selling into the seasonality weakness period from late August to September.
GoNoGo Signals:
Today, GoNoGo Chart has recorded another NoGo (delayed buying).
GoNoGo Charts indicators revolve around the concept that momentum goes hand in hand with trend analysis. The velocity of price change identifies the dominant trend and the sustainability and conviction level of the trend.
Rising momentum signals the continuation of an uptrend, and declining momentum warns of a weakening trend or an impending trend reversal. Trend identification is the single-most-important part of technical analysis.
Merging statistical analysis (velocity of price change) with the basic principles of technical analysis (trend identification, momentum, etc.), the GoNoGo technical indicator via visual color prompts determines if the market or security is ready to “Go” (buy) or “NoGo” (delayed buying).
Many technical indicators are complex due to the mathematical models involved and are open to various interpretations. GoNoGo Trend indicators simplify decision-making, with only two signals – Go (buy) or NoGo (delayed buying).
When the trend is the strongest, it notifies the trader by painting the price bar blue. When slightly less bullish, the color turns to aqua. Amber bars represent an uncertain or no trend, often occurring when the trend transitions from bull to bear and vice versa. Pink bars denote bearishness, and dark purple when the bearish trend accelerates.
SPX GoNoGo (daily) Interpretation:
The SPX daily candles shifted from the amber color (no trend) yesterday (8/15/23) to a pink bar (No Go) today (8/16/23). The NoGo signal comes after the Mar 2023 uptrend breakdown on 8/15/23 and the 50-day moving average violation. Although the primary uptrend from Oct 2022 bottom remains intact, the recent near-term breakdown warns of further declines before the resumption of the uptrend.
Interestingly, three prior SPX corrections - the 8/16/22 to 10/13/22 deep-correction, the 12/13/22 to 12/22/22 brief and shallow consolidation, and the 2/2/23 to 3/13/23 consolidation, showed similar technical signs ahead of the market downturns.
The Aug-Oct 2022 deep correction of 19.28% occurred on the backdrop of the GoNoGo charts painting a NoGo pink bar on 8/32/22 and the Jun 2022 uptrend breakdown on 9/2/22.
The Feb-Mar 2023 of 9.21% consolidation occurred because of the Oct 2022 uptrend breakdown on 2/24/23 and a NoGo pink bar signal on 2/28/23.
A third consolidation from 12/13/22 to 12/22/22 of -8.20% led to a NoGo pink bar bearish signal on 12/19/22, which was late into the consolidation phase.
Conclusion:
The daily GoNoGo bearish signal suggests the 7/27/23 to present correction can sustain over the near-to-medium term (several days to several weeks).
The violation of the Mar 2023 uptrend (4,450) and the 50-day ma (4,449.15) warns of a decline toward 4,302-4,328, coinciding with the 6/26/23 low (4,328.08), the 6/12/23 breakout (4,325.28), and the 38.2% retracement (4,302.15) from Mar-Jul 2023 rally. A 6.06-6.62% decline places the pullback as a typical consolidation within an uptrend.
Below 4,302.15 warns of the next SPX selloff toward 4,195-4,208, corresponding to the 5/18/23 breakout (4,195.44), the October 2022 uptrend (4,202), and the 50% retracement (4,207.97). A setback of 8.66-8.83% suggests a usual consolidation within a primary uptrend.
A breakdown below 4,195.44 warns of a deeper SPX selloff to 4,103.98-4,124.82 or near the 5/24/23 low (4,103.98), the 61.8% retracement (4,113.78) from Mar-Jul 2023 rally, and 200-day ma (4,214.82). A decline of 10.47-10.82% pushes the setback toward the threshold of a corrective phase.
A convincing violation of the 200-day ma (4,124.82) and the 61.8% retracement (4,113.78) signals reaffirms the reversal of the Mar 2023 uptrend and the start of a sharp decline, possibly toward the 3/13/23 reaction low of 3,808/86, suggesting 17.33% deep correction.
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