Bears on Friday finally landed the knockout punch. The S&P 500 (SPX) closed at 3,586, down a big 1.5%, states Jon Markman, editor of Strategic Advantage.

For the week, the benchmark S&P lost 2.9%, its third consecutive weekly decline. Bulls are in big trouble. The pullback last week to the June lows at 3,640 should have been a sharp whiff of smelling salts for optimists. Buying lasted all of one day. Ick.

I have been reluctant to get aggressively short because the S&P 500 is deeply oversold and bullish sentiment is as poor as it has ever been. Bears outnumber bulls by three-to-one, according to the latest survey from the American Association of Individual Investors. The AAII is typically a contrarian indicator. Excessive bearishness normally leads to sharp rallies, especially at inflection points.


However, the tape is sending a clear message: Neither retail nor institutional investors want stocks right now. Believe them. The knockout at 3,640 means that level is now important overhead resistance. The next support level is 3,398, the February 2020 high, about 6.5% lower.

Trade: Strategic Trade is currently flat. Barring a sharp reversal higher on Monday, the goal is to add new bearish bets in anticipation of more weakness over the remainder of the week.

Learn more about Jon Markman here...