NEW YORK ( TheStreet) -- Anyone watching the action in stocks since late in Wednesday's session can't be too shocked to find out that it's not just disappointing headlines -- be it the warning from FedEx ( FDX), the Federal Reserve's dim view of the economy, or Europe's inability to get its act together -- that are stacking up against equities.

Turns out market internals aren't anything to write home about either.

"We think that the stock market is breaking down in what could be a very nasty prelude to the fourth quarter," writes Mark Arbeter, chief technical strategist at Standard & Poor's. "It appears that the next wave down has begun in earnest, and we recommend extreme caution at this point. Many indices have broken down out of rising flags and/or bearish wedges, and we do not think it will be long before the August lows get taken out."

It seems the S&P 500 broke through the bottom of a rising flag pattern on Thursday, and the shorthand takeaway is basically: Not good.

"A rising flag is a continuation pattern and once it breaks, the longer-term trend often takes hold, which is down," Arbeter said. "With Thursday's weakness, the index dropped into the next potential chart support range from the August lows between 1,110 and 1,120."

The index staged a slight rebound on Friday, up a little less than 7 points at 1136 as the closing bell sounded. Year-to-date, the S&P 500 was down 10.2% on a price return basis through Thursday's close, forfeiting 73 points, or 6%, over that last two days. The index is down 17% since hitting its 52-week high of 1364 in late April.

Arbeter says the 1020 area is next level of chart support for the S&P 500 as it coincides with the lows of last summer and represents "the next key Fibonacci retracement of 50% of the March 2009 to April 2011 bull market." The S&P 500 held above that level on Friday with a session low of 1121.

From a sector standpoint, Arbeter observed that cyclicals are underperforming -- think companies offering big-ticket items, auto companies like Ford ( F), down 42% so far this year, or travel-dependent names, especially airlines like AMR Corp. ( AMR), the operator of American Airlines, which has lost nearly 60% in 2011 -- while defensive stocks, such as those offering staple household items, like Procter & Gamble ( PG), down just 5%; or utilities like FirstEnergy ( FE), up 20%, are holding up well.

There are two exceptions, however, Arbeter added. "Consumer discretionary, which usually gets hit during a major correction or bear market, is holding up well versus the S&P 500 so far," he wrote, noting many of these stocks, such as McDonald's ( MCD), offering low-price fast food, could also be considered staples.

Arbeter continued: "The other cyclical holding up well is information technology. The largest weighting in the sector is Apple ( AAPL), making up over 15% of the index, and certainly aiding the performance of the sector."

Indeed, Apple has hit repeated all-time highs of late, gaining 40% in the past year, as it gets ready for the expected launch of the iPhone 5 next month.

-- Written by Michael Baron in New York.

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