Key Takeaway

Global markets are under pressure, stemming from weakness in China’s credit market. The S&P 500 broke below the 50-day moving average, which was an important gauge of trend support this year. We expect short-term support around the 100-day moving average to stabilize the pullback, although upside appears to be limited, which warrants a slight defensive tone in portfolio positioning.

The gap up in volatility has broken above a downtrend that has been in place over the past few months, which could signal the start of seasonal weakness in equities. This is also evident in declining market breadth measures such as the percentage of stocks trading above their 200-day moving average (currently at 76%, albeit still above the 50% mark that would signal a deeper sell-off). Overall trend strength is weakening, and we anticipate value opportunities to appear at lower support levels into Q4.

S&P 500 Below 50-day Moving Average

S&P 500 Underlying Trend Weakness