The S&P 500 index could move lower nearer to the 5,000 mark in the coming weeks, according to market technicians at Piper Sandler.
The investment bank said it wants to see more evidence to determine whether the recent rebound from early August corrections is more than a relief rally for stocks. The market now faces strong resistance, alongside a deterioration in market breadth
“We suspect stocks will likely back and fill around their 50-/200-day moving averages (MAs) during the upcoming weeks, or at least until they make a decisive reversal of their downtrends from the July highs,” Piper Sandler's market technicians said in a Thursday note. The index’s 50-day and 200-day MAs are located at 5,455 and 5,037, respectively.
Equities saw a mixed performance on Wednesday following the release of the July CPI, which aligned with expectations, indicating a slight decline in inflation.
The Dow Jones Industrial Average led the way, closing above the 40,000 mark with a 0.61% gain. However, the five-day rally in the S&P 500 stalled as it encountered resistance near its 50-day MA and the ongoing downtrend from the July-August highs.
The Nasdaq finished the session nearly flat at 17,192, after oscillating between gains and losses throughout the day.
Market internals were also mixed, with the NYSE seeing more advancers than decliners by a 1.6-to-1 margin, while on the Nasdaq, decliners outpaced advancers by 1.4-to-1.
Value stocks slightly outperformed growth stocks, with the Russell 1000 Value (RLV) rising 0.43% compared to a 0.32% gain in the Russell 1000 Growth (RLG), Piper Sandler notes.
Volatility decreased as the VIX edged closer to its August low around 16. Last Friday, the 40-week Technique indicator, which tracks market breadth, shifted back to a sell position.
"This indicator can and often does flip back and forth during volatile market rotations," the analysts pointed out.
Meanwhile, Piper's M.A.C.E. trend analysis revealed that, within the week, the number of stocks in downtrends surpassed those in uptrends. Despite this, their 26-week New Highs indicator remains in a buy position, suggesting ongoing strength in select areas of the market.