Rampaging Stock Bears Slow Down Technical Level Of Key S&P 500

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(Bloomberg) — The latest loss in US equities brought the S&P 500 below the June low in the bear market — and then some buyers showed up.

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The S&P 500 fell a whopping 2.7% to 3,656, below its mid-June low of 3,666. It fluctuated just a few points above that level during the session, with programmed purchases halting the decline for a while.

“The buyer’s strike is justified because you can park your money elsewhere,” said Willie Delwiche, investment strategist at All Star Charts. “There’s still a lot of work to be done before we can really feel a lot of conviction that something sustainable is emerging.”

Traders watching the charts for signs of where the decline could abate had identified the June low as a potential area for support. A close below that level would wipe out all gains since late 2020.

The S&P 500 fell for the fourth day in a row and is on track for its fourth weekly decline in five. The sell-off has been relentless across all sectors: the meter has caused more than 400 members to close lower each of the last three days before Friday.

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“The technicalities have fallen out of bed,” Art Hogan, chief market strategist at B. Riley, said in a phone call.

The breakdown since the peaks in August is strengthening the downward trend channel since the bull market peaked in early January, according to Gina Martin Adams of Bloomberg Intelligence. “The breakdown below 3,900 support leaves little for the index to understand as it tests its June lows,” she wrote in a note.

The Federal Reserve made crystal clear this week that it will continue to raise interest rates sharply until officials see signs that price pressures are easing. That process will not be “painless” for the labor and housing markets, Fed Chair Jerome Powell warned.

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Wednesday’s rate hike came with forecasts that the central bank has another 1.25 percentage points of tightening in store for investors this year, a much more aggressive pace than investors had anticipated.

Despite the defeat, stocks are still far from obvious bargains. At its low in June, the S&P 500 was trading at 18 times earnings, a multiple that surpassed valuations of all previous 11 bear cycles, data collected by Bloomberg shows. In other words, if stocks recover from here, this bear market bottom will have been the most expensive since the 1950s.

While investors used to be positioned as if the economy was heading for a soft landing, that is no longer the case, according to Anastasia Amoroso, chief investment strategist at iCapital.

“What the markets really need to do is price in a recession because it looks like a weakness in the labor market would eventually cost that,” she said on Bloomberg TV this week.

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The market has been trading in the 3,700-3,800 to 4,300 range for some time now, she said.

“Maybe we need to see a breakthrough below the bottom of that trading range to find really dirt cheap value in stocks,” said Amoroso. “We’re just not there yet, so the trade for now is to actually be defensive and get paid while you wait for this bottom in the market.”

As for the June low, many see an ominous signal in the figure.

“Anything below where it is now feels devilish,” Kim Forrest, founder and chief investment officer at Bokeh Capital Partners, said in an interview.

(Update prices everywhere.)

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