The worst drop for American equities in 18 months is setting up the biggest test since October for bulls after the floor caved in under the Standard & Poor's 500 Index.
More than $500 billion was erased as the S&P 500 slid 2.1 percent to 2,035.73 on Thursday, plunging below a level from March that had held as the index's lower boundary for seven months. Biotechnology companies dropped into a correction, down 12 percent from a July high, while chip stocks entered a bear market.
Lines on charts are exerting unusual influence on traders in 2015, a year in which the second-longest bull market since the 1950s has ground to a halt after two years of nearly straight-up advances. Concerns ranging from China to the Federal Reserve contributed to Thursday's retreat, which also sent the S&P 500 more than 2 percent below its 200-day moving average.
``It's definitely important that we closed below the March lows,'' said Jonathan Krinsky, chief market technician at MKM Holdings LLC. ``Eventually the market needed to correct and for that to happen, the larger-cap stocks needed to get hit. We're finally seeing that happen.''
Led by a 7.8 percent plunge in Netflix Inc., companies that have come to be known as the Fab Five because of their influence on the S&P 500 saw $49 billion in market value erased Thursday, the most since January 2013. Losses in Facebook Inc., Amazon.com Inc., Google Inc. and Apple Inc. pushed the Nasdaq 100 Index down 2.8 percent.
Even after Thursday's selloff, the S&P 500 still hasn't recorded a 5 percent retreat over any amount of days in 2015 -- a feat it has managed only three times since 1964. It's also gone more than three years without a drop of more than 10 percent, the longest stretch since 2004. Friday saw more losses, with the S&P 500 dropping 0.7 percent to 2,022.19 as of 10:09 a.m. in New York.
Prior to Thursday's breach of the 200-day moving average, the S&P 500 had fallen below the key technical level on an intraday basis three times in 18 sessions. Until Thursday, it had recovered the same day each time.
The most recent instances came on Wednesday and Aug. 12, when the S&P 500 careened through the line while erasing its gain for the year -- only to rally back and wipe out its entire 1.5 percent retreat. On July 28, threatened with its longest drop since 2012, the benchmark index turned in the first hour after flirting with the key technical level.
The S&P 500 didn't make a similar recovery on Thursday. Money managers like Tom Mangan, who helps oversee about $6.4 billion at James Investment Research in Xenia, Ohio, say it will.
``This is a game you can play until about a week before the Fed meeting,'' said Mangan. ``The 200-day is a level people want to hold. The trading range is something we watch and monitor in terms of how aggressive we should be in buying."
Stock bulls can also point to futures tied to the Chicago Board Options Exchange Volatility Index, which signal that gains in the VIX may be overdone. The VIX closed at 19.14, higher than every contract predicting its future path through April of next year.
The inversion between VIX and its futures shows that speculators think the volatility gauge has stretched too far, too quickly, according to Scott Maidel at Russell Investments. Predicting the VIX will go lower essentially amounts to a bet U.S. equities will rise, as the volatility gauge typically trades inverse of the S&P 500.
``VIX climbing above the first-month future by a couple volatility points is a sign of market stress,'' said Maidel, an equity-derivatives portfolio manager at Russell in Seattle. ``Historically, when we have seen this type of VIX move above first-month VIX futures, this has been a reasonable entry point for volatility shorts.''
The S&P 500's 14-day relative strength index, an indicator used to determine whether gains or losses in an asset have gone too far, could also be construed bulllishly. The measure sits at 34.3, close to the 30 threshold that some traders view as a point where rallies are likely to materialize.
That's the closest the RSI measure has come to breaking the oversold level since December. It last fell below 30 on Oct. 16, after which it recovered 11 percent through the end of the year.
The U.S. stocks selloff will ``be relatively short-lived in the U.S. because the domestic fundamentals are simply better,'' said Jim Russell, a Cincinnati-based portfolio manager at Bahl & Gaynor Inc., which has about $14 billion under management and advisement. ``It should be confined to a few percentage points.''