SAMT Blog
S&P500 entering weaker season May-October
08. May 2023, by Bruno Estier
Technical Analysis
As the period of the May-October headwinds is beginning, the S&P500 is again close to the top of its last 6-month range (3765-4195), along with overbought momentum, and is about ready to send sell signals. One should consider not only the rebound from the October low of 3491, followed by a range of 4195-3765 but also the decline from 4818-3491 should be included in the analysis. This is the role of the weekly Ichimoku Cloud, which we charted forward by 26 weeks and should help define the current situation: Bearish below the Cloud, Neutral within, and Bullish above. The top of the Cloud will be flat at 4150 until the end of June. Near this level is the former resistance of the February low at 4195 and the upper flat weekly Bollinger Band at 4221. This builds a formidable ceiling and, not surprisingly, the last week of April showed an intra-week decline, following a weekly Doji candle (open/close 4135). It is well known that the S&P500 has risen thanks to a few large caps, while the market breadth has been weaker as demonstrated by the weakening Relative Strength (RS) of Small Caps v. S&P500 on the upper panel. In the past 4 weeks, the RS of the Nasdaq v. S&P500, mostly represented by Technology/Communication sector large caps, has been stalling and has declined a tad. The VIX near the S&P500 candles has reached 16.75% – a low level not seen for a year. A rebound of the VIX above 20% is probable.
A chart is worth 1,000 words. So, we created both the Green and Red Paths on the downside for the May-October period. If the Green Path remains within the pink Cloud until September, the fundamental explanations will alternate between bullish and bearish. But, if the S&P500 follows the Red Path by declining rapidly toward the lower level of the Cloud (3850), expect more dramatic bearish explanations. Both cases will be tough for a Buy and Hold.
About the author
Bruno Estier is an Independent Market Strategist and founder of Bruno Estier Strategic Technicals (bruno.estier.net). Based in Geneva, he is a global market advisor and technical analyst coach for professional traders and portfolio managers.
He is a past president of the Swiss Association of Market Technicians (SAMT) and served on the board of directors as chairman and secretary of the International Federation of Technical Analysts (IFTA). Bruno holds a MSTA from The Society of Technical Analysis (STA) in London and the CFTe and MFTA designation from IFTA.
He worked for 12 years as a technical analyst with JP Morgan in Zürich and Paris and 10 years with Lombard Odier & Cie in Geneva. He earned an MBA from The University of Chicago Graduate School of Business and a Masters in Economics from the University of Saint Gallen (HSG).
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