Why stock-market bears are eying June lows after S&P 500 falls back below 3,900

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Goodbye, summer boom.

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The S&P 500 ended Friday below a key chart support level that has served as a battleground in recent years, with leading technical analysts warning of a possible test of the stock market’s June lows.

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“In the last three years, the level of [S&P 500] 3,900 with the highest volume of business done. It closed below Friday for the first time since July 18, which, in our view, opens the door for a June low” near 3,640, BTIG Chief Market Technician Jonathan Krinsky said in a Sunday note (see chart below). .

BTIG

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s&p 500 spx,
-0.72%
Ended Friday at 3,873.33 – the session fell 0.7% and closed the 4.8% lowest for the week since July 18. This left the index up 5.7% from its June 16 low of 3,666.77. According to FactSet, the S&P 500 recorded an intraday low of 3,636.87 for selloff on June 17.

Dow Jones Industrial Average DJIA,
-0.45%
Friday ended the week down 4.1% at 30,822.42, while the Nasdaq Composite comp,
-0.90%
The weekly saw a decline of 5.5% at 11,448.40. stock-index futures ES00,
-0.70%

YM00,
-0.64%

NQ 00,
-0.82%
Been trading flat for a while since Sunday.

A move back to June lows likely won’t be a straight line, Krinsky wrote, but the Cbow Volatility Index VIX lacks clear “panic” so far,
+4.83%
A decline in more extreme oversold conditions as measured by the futures curve and monthly relative strength index does not bode well, he said.

Other analysts have noted the lack of sharp growth in the Spot VIX, often referred to as Wall Street’s “fear gauge.” The options-based VIX ended Friday at 26.30 after trading at a high of 28.42, well above its long-term average of 20, but below the panic level that is often seen below the market above 40.

Stocks had rebounded sharply from their June lows, which saw the S&P 500 down 23.6% from its January 3 record at 4,796.56. Krinsky and other chart watchers had completed a more than 50% retracement in August that saw the S&P 500 fall from a January high to a June low — a move that had not been followed by a new low in the past. .

Krinsky warned at the time, however, against chasing the boom, writing on August 11 that “the strategic risk/reward makes us look bad here.”

Mott Capital Management founder Michael Kramer warned in a note last week that a close below 3,900 would set up a test of support at 3,835, “where the market has the next big gap to fill.”

Stocks fell sharply last week after a Tuesday reading on the August consumer-price index showed inflation running hotter than expected. The data cemented expectations for the Federal Reserve to deliver yet another supersize 75-basis-point, or 0.75-percentage-point, hike in the fed-funds rate, something traders and analysts called policymakers during the 100-basis-point. Penciling in point increments. Complete the two-day meeting on Wednesday.

Preview: The Fed is ready to tell us how much ‘pain’ the economy will suffer. However, it still won’t indicate bearishness.

Markets bounced off June lows as some investors became more confident in the Goldilocks scenario in which the Fed’s policy tightening would reduce inflation in relatively short order. For the bulls, there was hope that the Fed would be able to “pivot” rate hikes, averting a recession.

Stubborn inflation readings have left investors to raise expectations where they think rates will top, raising fears of a recession or a sharp recession. Aggressive tightening by other major central banks has raised fears of a broader global recession.

Can the Fed control inflation without crushing the stock market? What investors need to know

But listen to Ray Dalio Best New Ideas at the Money Festival September 21 and September 22 in New York. The hedge-fund pioneer has strong views on the economy going forward.

Credit: www.marketwatch.com /

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