The analysts who study price charts for a living don’t like this stock market

Published Tue, Oct 17 20231:00 PM EDT

Jesse Pound @/in/jesse-pound @jesserpound

The stock market is showing signs of shaking off its late summer slump, paving the way for a potential year-end rally. But many of Wall Street's top chart watchers aren't buying it. The S & P 500 is up more than 3% since Oct. 3 and has risen comfortably above its 200-day moving average near 4,200. That can sometimes be a positive sign in technical analysis because it means that a key area of downside support held firm. However, the rally doesn't have far to go before it reaches its 50-day moving average, roughly around 4,400, at which point the internal metrics of the market suggest that the index might get knocked back down. "Two weeks ago the S & P 500 had a textbook oversold bounce off the rising 200-DMA," JC O'Hara, chief marketb technician at Roth MKM, said in a note to clients Sunday. "That bounce ran straight into resistance from the declining 50-DMA. The seasonal straight, which typically starts mid-October, is being challenged by a very difficult global macro environment. Markets have been patient from a top-down perspective, but we are seeing bottom-up weakness expand." The skepticism comes despite the fact that the fundamentals of the market have consistently surprised to the upside this year. The U.S. economy has so far skirted recession, while corporate earnings have largely held up better than Wall Street expected. Still, the weak technical picture points to downside if the fundamental picture starts to deteriorate. In some ways, the technical concerns about the latest move higher mirror why many Wall Street pros were uneasy about embracing the rally in the first half of 2023 — most stocks are getting left in the dust by a handful of big tech names. "The bear case lies in the fact that the 'average' stock is acting like a bear market," BTIG technical strategist Jonathan Krinsky said in a note to clients on Sunday. "The bull case lies in that the [Nasdaq-100] and SPX are in uptrends and up meaningfully YTD. This divergence has been a talking point for most of this year, and still has yet to be resolved. We remain in the camp that it's only a matter of time before the winners (i.e., tech.) succumb to what most of the rest of the market has been saying for months now." The S & P 500, like the Nasdaq-100 , is a market-weighted index, so rallies in a few big stocks can sometimes give an unclear picture of how the rest of the market is doing. And other indexes that try to better represent the entire market than the S & P 500 are showing weakness, according to a Monday note from Strategas strategist Chris Verrone. "These have been very messy charts, but both the equal-weight S & P and the Russell 2000 are again back to negative standing in our proprietary trend model," Verrone said. In another data point that shows the narrowness of the market, Verrone's Strategas colleague Jason Trennert pointed out in a separate note that just 41% of stocks in the S & P 500 are trading above their 200-day moving average. To be sure, other chart experts aren't yet ringing alarm bells for the market. Frank Gretz, a technical analyst at Wellington Shields, pointed out that the Nasdaq-100 is already above its 50-day moving average, and that the Russell 2000 index of small cap stocks is weighed down by regional banks that have struggled to rebound from the failure of several mid-sized banks earlier this year. "I am impressed that the market has acted pretty well in the face of some bad news," Gretz told CNBC. And Oppenheimer technical analyst Ari Wald said in a note to clients over the weekend that seasonal patterns could still prove a tailwind for the market. "The S & P 500 continues to track its seasonal tendency as well. Looking at the last ten pre-election years, an average composite of the S & P temporarily peaks in July, reaches an initial bottom in late August, suffers a final round of selling in late September, and resumes higher in October," Wald said. — CNBC's Michael Bloom contributed reporting.