Stocks failed to catch a bid for a fourth straight session as investors continue to de-risk in portfolios amidst this normal period of volatility/weakness for stocks during the third quarter. The S&P 500 Index closed lower by a mere basis point (0.01%), continuing to push below intermediate support presented by its 50-day moving average. Momentum indicators continue to point lower with the relative strength index closing in on oversold territory around 30. The benchmark has retraced approximately 250 points of the possible 400-point correction that was probable to reset and retest levels around the June breakout point at 4200. It would take a definitive break of the horizontal hurdle that was previous resistance to fuel panic in the market. For now, the pullback since the end of July can be deemed as orderly. Another six weeks remains in this period of volatility/weakness for stocks that typically sets the market up for the best six month of the year span that starts in October and, without a breakdown of significance, this market can still be seen as one to buy on weakness for the fall season, based on what the technicals are foretelling. The fundamental backdrop is another story, but we are still waiting for further coincident indicators of an economic contraction to trigger to suggest an outright negative bias of risk-assets is warranted over a prolonged period of time. We still see this scenario as being highly probable to occur at some point ahead, but the uniqueness of this period coming of a significant pandemic disruption, the resilience of the consumer, the unprecedented liquidity provided by the Fed, and weather have made it difficult to pin-point when an economic recession is definitively beginning, as many macro-economic data points suggest will occur. For now, the technicals, seasonals, and fundamentals for stocks all lean negative through the end of the third quarter, but we would have to expect some kind of near-term reprieve in selling pressures around the normally upbeat Labor day holiday timeframe.
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