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S&P 500 is Down 4% in September

By:Christopher Vecchio - CFA

Sentiment is the worst it has been since May. What's next?

  • The S&P 500 fell nearly 4% in September.
  • A spike in bearish sentiment per the AAII Investor Sentiment Survey has now accelerated to the point where it might be considered excessive.
  • The chart set up in /ES is beginning to show signs that meaningful support arriving.

Fig. 1: Intraweek price percent change chart for /ES, /NQ, /RTY, and /YM

Technical damage lingers across U.S. equity markets in what has been a typical, ugly September (historically the worst month of the year for stocks).

But it’s always darkest before dawn, as they say. And the mood is darkening into something bearish, indeed. For the week of Sept. 28, the AAII Investor Sentiment Survey just produced the highest bearish sentiment reading (40.94%) since May 11, 2023 (41.22%).

This begs the question: are traders too bearish? Over the past three months, there has been a +16.46% swing in bearish sentiment:

AAII Survey

The eye test suggests that these three-month spikes in bearish sentiment coincide with near-term market bottoms. A review of the data reinforces this hunch:

tastylive recent spikes in AAII

Deliberately only going back three years (to capture the era leading into and through the COVID-19 pandemic) and looking at all instances in which the net three-month change in bearish sentiment (per the AAII survey) was at least +16.5%, there is a noticeable pattern. The S&P 500 tends to trade higher one week (+0.3%), one month (+4.1%), and three months later (+9.8%). The reading for Sept. 28 produced a +16.46% change from three months ago, so we’re right on the cusp of this meaningful territory.

The technical outlook reinforces the idea that there may be a tradeable low coming into play as well:

/ES S&P 500 price technical analysis: daily chart (September 2022 to September 2023)


Looking at /ES, the S&P 500 E-mini futures continuous contact, the index has started to find support at the uptrend from the October 2022 and March 2023 lows. A morning star candlestick pattern, a three-candle bottoming signal, is starting to come together as well.

/ES has traded below its daily 5-EMA (one-week moving average) since closing below there on Sept. 15. A move above the daily 5-EMA would offer confidence—alongside the return profile of the market after spikes in bearish sentiment—that a tradeable low is in.

And that would be bad news for all the bears who saw a potential head and shoulders pattern forming in /ESZ3 last week.

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx

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