S&P 500 doesn't tell whole story thanks to Magnificent 7: Key resistance levels to watch

Technical analyst Bob Lang said markets are in a textbook downtrend and the S&P 500 isn't capturing what's really happening behind the scenes. Watch the video above for a sneak peek of what he told members of the Action Alerts PLUS investing club. 

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FULL VIDEO TRANSCRIPT BELOW: 

J.D. DURKIN: Bob, you noted that sellers have been winning out in what's normally a seasonally strong period for the market. Do you still feel that way as we close out this week? Where are you?

BOB LANG: Yeah, J.D. , it's a continuation of the prior two months' chart indices. Specifically, the Russell 2000 and the S&P 500 are trending down, making lower highs, lower lows. And what that is that? That is the textbook downtrend, trending downward with lower highs and lower lows. This is a textbook definition of a downward move.

The bulls, obviously, were very hopeful that the calendar was going to be working in their favor this time around. And as we often enjoy a bullish seasonality this time of year, it just hasn't happened so far. But, of course, things can change. We have a new month coming up.

We have the best six month period of the year coming up starting November 1. It lasts all the way through the end of April. But with only three sessions left in October, J.D. , it's looking as if we will have three consecutive down months as we start the last two months of the year and perhaps some more selling. But you know what, don't call me the Grinch.

J.D. DURKIN: I would never call you the Grinch, of all the things, Bob. So let's talk about this S&P level here because we're right now about 4140 and change. We haven't really seen this level since May. A lot of technicians have been following this support level at 4200, 4220, wondering if we would break below that. But like you said, we're kind of in a little bit of a new ball game in the last few trading sessions. Bob, is there a new S&P level that you're targeting now that you have your eyes on as we move forward?

BOB LANG: Well, J.D. I'd be looking at the 4100 level to hold firm, and if that doesn't hold firm, there's plenty of areas below there that the S&P 500 can travel to and just fill normal gaps. So that 4200 level that you mentioned a few moments ago was the big one to hold in it, and it cut through it like a hot knife through butter on Wednesday. And so that becomes a really heavy resistance point because yesterday the move was confirmed to the downside.

Now, to the downside, again, I mentioned that 4100 level, which should see a little bit of support there. And if we do get to an extreme oversold reading, we should probably get a really nice bounce off that 4100 level. But I'm not sure if that's going to be an area where investors and traders are just going to use rallies to go ahead and sell. That's been pretty much the MO of investors and traders since the beginning part of August. Any rallies has been a selling opportunity.

But below that 4100 level, there's some gaps that still remain to be filled at around 3950 or so and a little bit below there. I know people aren't happy. They're going to be a little discouraged if we get down to those areas over there. But look, we'll talk about it in a little while, the average stock is down in 2023. So if you're in a few select names, you're doing pretty well. But otherwise, the average stock is down versus the rest of the market.

J.D. DURKIN: Bob, I've got to admit I shuddered a little bit when I heard you say 39 and change. We haven't had that level in a long time. And you're right because we have the S&P 500. But if you look at the equal weight for the S&P and you don't consolidate these names, you're down 3% to 4% equal weight S&P so far in 2023. So that top line figure, especially with those Magnificent Seven stocks, does not always tell the story.