The S&P 500 Has Lost Ground Since Powell's Warning Of 'Pain': What Comes Next?

The S&P 500 index, as well as the components in it, tend to move in streaks both on the upside and downside. Paying attention to a streak in the index may assist investors in the challenging task of catching turns in market momentum.

More Bad Ones Than Good Ones In 2022: In the glory years, post-pandemic in 2020 and for much of 2021, the S&P 500 index — which is tracked by the SPDR S&P 500 ETF Trust SPY — had plenty of multiday winning streaks. And during the recent rally off the June low, there were a few winning streaks that lasted at least four days.

Yet since mid-June and even during the recent rally, the index has had losing streaks that lasted at least four days.

The June Low: The first losing streak referenced in this story was from June 8-14, when the index swooned on a closing basis from 4,116 to 3,740.25. On June 15, the index did have a good up day, but gave it all back and then some the following day.

Finally, on June 17, the index put in a double bottom (3,642 and 3,639) and embarked on a nearly 700-handle rally. Interestingly, the high for the move was made off a three-day winning streak, which could have been five if it had not been interrupted by a one-tick decline Aug. 11. 

What Now? After Fed Chair Jerome Powell’s hawkish “pain” speech Friday, there was not one green day in the markets until Thursday.

The index broke the losing streak Thursday, closing 0.3% higher with a late afternoon rally. 

While some of the damage to the index had already taken place before Powell's speech on a closing basis (4,307.75 to 4,201), the bulk of it has come this week. At this time, the index has shed over 150 handles from last Friday’s close (4,059.50 to the current low of 3,903.50) and is attempting to rebound.

Not Exactly The Same Market Environment: There is one big difference between the present losing streak and the one that marked the June low: the June low came during the week of quadruple witch expiration, which often marks major turning points in the index.

Unfortunately, there will only be a weekly options expiration on Friday, which instigates volatility, but investors will have to wait until Sept. 16 for the quarterly quadruple witch expiration.

No Real Statistical Edge: The average daily return of the past 72 years is flat, but over the years there is a slight tendency for stocks to rise slightly on the Friday before Labor Day weekend.

In addition, the markets are often one-directional on the Friday before three-day weekends, as markets trade on lighter volume. If the pendulum gets swinging in one direction, it is hard to stop.

As always, investors should adhere to their own risk-reward parameters if attempting to “catch a falling knife” or step in front of a multiday winning streak.

If anything, if the markets rebound into the close, the levels provided by Thursday’s session may provide key entry and or exit levels for the upcoming sessions.

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