Morning Notes — Near-Term Technical Caution

Near-term caution: The S&P 500 has managed to hold technical support at ~3220 thus far, but its recent inability to sustain intraday gains and relative underperformance from cycle sectors/indices increases the probability of lower levels.  The S&P 500 appears to be losing the near-term momentum required to push through former support levels (now resistance) at ~3350.  A break below ~3200 (give it some room) doesn’t kick off a bear market, but it does open the technical window for another ~6% downside to 2975-3025. 

Long-term support: The September 2 closing high of ~3581 included none of usual signs of a market top like decelerating price trend momentum, diverging sector performance, heavy equity positioning or extreme bullish equity sentiment.  In fact, equity positioning has remained below average and bearish equity sentiment has remained elevated during the entire retracement from March 23-September 2.   The most recent weekly American Association of Individual Investors (AAII) survey shows bearish equity sentiment just off record extremes at 45.99 with the 50-day and 100-day moving averages sitting at all-time records.  The most recent weekly data shows US equities funds saw outflows of $25.8B, the third largest on record.  And current hedge fund/CTA beta levels suggest these groups hold below average long equity positions.