Stocks opened slightly higher this morning before reversing sharply a few hours later. Then, stocks flattened out around noon but ultimately finished moderately lower. It was a wild day of trading that saw sentiment whipsaw several times. In the end, however, bears took control as Treasury yields soared. The 10-year rate climbed to 3.34%, inching closer to the yearly high of 3.48% set back in mid-June.
Analysts were quick to slap down any optimism that a trend-breaking rally would emerge this month. “Bulls hoping for a rebound will be doing so during a shortened Labor Day week that historically has paralleled September and its track record of underperformance: Losses have been slightly less frequent over the past three decades, but volatility has been higher,” said E*Trade managing director of trading Chris Larkin. Piper Sandler’s Craig Johnson offered a more bullish take: “I haven’t seen investors this negative on the market in quite some time,” he said. “But here’s the thing that I find interesting, the market is reflecting this,” Johnson added, pointing to indicators that the market is oversold. “When I see levels this low I lean into the negativity and look at where I want to buy.”
And though the market has certainly flipped bearish, crushingly oversold conditions don’t necessarily suggest that stocks will be able to reboot the bear market rally. Each lengthy selloff of the last year showed similar signs of slowing before plummeting further. As of this afternoon’s close, the percentage of stocks trading above the 10-day moving average has been in the single digits for seven consecutive trading days. The VIX is above 20 and the S&P’s stochastic indicator remains buried. 
That suggests the market’s set to pop higher. But none of it will matter if support fails to hold at 3,900. The S&P temporarily dipped below support (yellow line) today before closing just above it.
And, as we’ve observed over the last few days, a Fed rate hike on Friday threatens to plunge the index well below support to the June lows. 
