mw: Here’s what technical analysts are watching after the year’s biggest selloff
One chart watcher says the stock market’s slide “could turn nasty” if the S&P 500 can’t hold above 2,040, while another emphasizes that investors shouldn’t expect a quick rebound.
That’s after the benchmark SPX, +0.42% SPY, +0.45% on Monday suffered its biggest one-day drop so far this year, finishing down 2.1%.
Jeffrey Saut, chief investment strategist at Raymond James, has his eye on 2,040 and stresses that the Dow DJIA, +0.35% has seen bigger damage. He writes in a note early Tuesday:
“[T]his decline could turn nasty if the S&P 500…doesn’t find support between 2040 and 2070. And while the SPX stayed above its 200-day moving average at 2053.51, the Dow Industrials…did not.…I would not trust this first bounce, believing last week’s ‘call’ for down into the July 4th holiday still makes sense.”
Frank Cappelleri, technical analyst at Instinet, also isn’t expecting a bounceback in the near term, writing in a note:
“Rarely are days like yesterday (and their contributing factors) easily forgotten. And a major reason is because of the carnage inflicted on the charts.…The bottom line is that the previously tentative uptrend is now broken and the leading areas were the hardest hit (Financials, Consumer Discretionary, Small Caps, etc.). We’ve seen the market come back strongly after large declines like yesterday, but it frequently doesn’t happen right away.”
Meanwhile, Monday’s market meltdown wasn’t a major move, according to Katie Stockton, BTIG’s chief technical strategist. She writes in a note:
“The SPX broke initial support yesterday as it reacted to negative news out of Greece. The breakdown is minor in nature, noting that there is additional support in the 2044-2054 area per our latest Global Technical Strategy, and we expect the pullback to mature in the days ahead. Importantly, six of our market internal measures…have reached contrarian extremes - the last time this happened was at the December 16, 2014 low in the SPX. Now we will be on the lookout for intraday DeMark “buy” signals. An upturn in the daily stochastics (on improved intraday momentum) would make us feel comfortable adding exposure.”
In early action Tuesday, the S&P 500 was trading moderately higher.
