The S&P 500 violated a key technical level, threatening a yearend rally
The S & P 500 is poised to snap a four-day slide on Wednesday, but the pressure the index has been under this week might not be over. Persistent fears around valuation levels for artificial intelligence stocks have plagued the major averages lately. While investors were optimistic Wednesday that Nvidia’s third-quarter earnings after market closes wouldn’t disappoint, helping send the S & P 500 into the green, all three leading U.S. indexes remain lower by at least 1% or more on the week. The week began Monday with the broad market S & P 500 closing down almost 1% and below its 50-day moving average (MA) for the first time in 138 trading days, the longest since 2007 and sixth-longest in 75 years, according to data from Adam Turnquist at LPL Financial. More ominously, Monday also saw the S & P 500 trade below the lower boundary of a rising price channel, Turnquist said. When combined with the violation of the 50-DMA, the chief technical strategist believes that there may now be a greater chance stocks suffer even more losses, potentially falling at least 10% from the S & P 500’s latest high. Deeper pullback risk “When you look at, for example, what’s happening with momentum, what’s happening with market breadth, what’s happening with leadership in the market, I think all of those signals collectively point to higher risk for a deeper pullback than what we’re seeing right now,” he said in an interview with CNBC. “I’m not saying it’s the end of the bull market or anything like that, but correction territory would not be out of line, I think, from what we’re seeing in the market right now.” A correction on Wall Street is generally defined as a decline of 10% or more, while a bear market is accepted as starting when prices fall 20% or more. The latest up move in the S & P 500 was the 18th time since 1950 that the index stayed above its 50-day MA for at least 100 trading days, LPL data showed. In prior instances when the prolonged period above the 50-DMA ended, the average return over the following 12 months was 6.2%, below the average 12-month return of 9.5%, signaling that “maybe lackluster returns is part of the story,” Turnquist said. .SPX mountain 2025-04-07 S & P 500 since April 7 Risk aversion has already started, with defensive groups such as health care outperforming, rising 5% so far in Nov., the most of the 11 main sectors in the S & P 500. As a result, Turnquist questions whether investors will see a year-end rally, especially if AI stocks continue weakening. The strategist believes the S & P 500 is at risk of dropping to 6,550 in the near term and could even reach 6,200 within the next two months – not far above last February highs. Below that, investors might have to kiss the bull market goodbye. “If the S & P takes out its February highs, those coincide right near the 200-day moving average, so a major, major support level where there should be buying pressure from bulls,” Turnquist said. “If that gave out, then I think you have to rethink this concept of the bull market continuing any further.”
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