Trading data for the S&P 500 index is displayed on a board at the New York Stock Exchange after the closing bell on Tuesday (local time). [Reuters]
Trading data for the S&P 500 index is displayed on a board at the New York Stock Exchange after the closing bell on Tuesday (local time). [Reuters]

Even as US stocks hover near all-time highs, technical warning signs are emerging ahead of September, according to an analysis from JPMorgan. The global investment bank advised that investors should consider trimming some of their long positions in early September if current trends persist.

According to Business Insider on Tuesday (local time), Jason Hunter, JPMorgan's technical strategist, said in a recent note to customers that while major US equity indexes still show an upward trend, technical signals within the market suggest it could face seasonal weakness.

Stock markets have historically tended to weaken during the three months from August through October. According to Bank of America, the S&P 500 has averaged a 0.02 percent decline during that period since 1928, with an average correction of 7.35 percent in down years.

The seasonal weakness from late summer through early fall has been particularly pronounced in midterm election years. According to Goldman Sachs, the S&P 500 has posted a median return of 0 percent from Aug. 1 through Election Day in November in midterm election years since 1974.

"There is no need to take aggressive action to reduce risk yet, but it is advisable to maintain trend-following strategies such as stop-loss approaches for long positions," Hunter said. "If the current situation persists, we will consider reducing long exposure in early September."

S&P 500 momentum stalls below next resistance level

The first technical signal JPMorgan flagged is that the S&P 500 remains below a key resistance level.

Hunter said the S&P 500 recently climbed to a record high of 7,816 but will face the next resistance zone between 7,909 and 7,935. He added, however, that the index remains above a key support range of 7,521 to 7,620.

"The medium-term trend is slowing near long-term channel resistance, market leadership has recently rotated, and the technical conditions for former AI-sector leaders are fragile," Hunter said. "If these risk factors persist into September, it may be advantageous to reduce exposure."

Value stocks and financial stocks, which had recently been rising, are also flashing warning signals as they approach major resistance levels.

Hunter said value and financial stocks have performed well recently but that the trend could slow. The S&P 500 Value index and financial stocks each rose about 2 percent over the past month.

"There are no clear signs of buying exhaustion on the charts at this point, but both indexes are approaching long-term channel lines, trend lines, and Fibonacci swing targets," Hunter said.

Software, semiconductors and hyperscalers also flashing warning signs

Hunter also pointed to a recent pullback in software stocks, saying the S&P 500 software industry index has fallen into a "key resistance zone" between 7,749 and 8,078.

Hunter said semiconductor stocks and hyperscaler companies are also trading below major resistance levels, describing the current resistance zone for semiconductors as "the line that separates a short-term dead-cat bounce from a resumption of the multi-year uptrend."

"If trading continues below that zone through Labor Day, the index could become vulnerable to another sharp wave of selling pressure in the fall," he added.

"With both hardware and hyperscalers trading below key resistance, any further weakness would more likely reflect broad-based selling pressure across the AI theme rather than a rotation from hardware into hyperscalers," he said.

Meanwhile, JPMorgan maintained its medium- to long-term bullish outlook on US equities. In an Aug. 10 note, the bank raised its year-end target for the S&P 500 to 8,000 from 7,800.

JPMorgan said the benefits of AI investment became more evident in the second quarter, adding that strong cloud growth, expanding order backlogs and improved cash flow visibility at Google, Amazon and Microsoft had helped ease investor concerns about the profitability of AI spending.


bbo@heraldcorp.com