Chart Watchers Feeling for Bottom of Rout Are Focusing on This Line

Updated on
  • Stifel and Weeden see S&P 500 testing 200-day average
  • That would represent a 12% decline from January peak
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A lot has been upended by the rout in equities. Gone is the bump in stocks most visibly tied to Donald Trump’s tax cuts. And the best January in two decades has faded from memory.

Is any level safe? It sure doesn’t feel like it. Optimism about a midweek recovery has been dashed as the S&P 500 plunged as much as 2.9 percent Thursday. One line in the sand is getting brighter to technical strategists at Stifel Nicolaus & Co. and Weeden & Co.

It’s the average price of the S&P 500 over the last 9 1/2 months or so -- the 200-day moving average, a level the index has been comfortably above since back before Election Day. After falling through flimsier resistance at the 50-day mean, look for the 200-day to act as both magnet and floor, said Barry Bannister, chief equity strategist at Stifel.

The threshold, currently near 2,538, would represent a 12 percent decline from the all-time high reached on Jan. 26. The benchmark index has fallen in seven of the past nine days, dropping more than 9 percent over the stretch.

To Michael Purves, chief global strategist at Weeden, a test at the 200-day level looks possible now that the S&P 500 just broke its 100-day average. “It may well likely be a quick trip,” he wrote in a note.

The threshold has proved a key support during two market selloffs in 2016: one around Britain’s vote to exit the European Union, and the other before the U.S. presidential election. The S&P 500 has stayed above that level for more than 400 days, the second-longest streak since 1998.

Futures on the S&P 500 fell about 0.1 percent as of 9:35 p.m. in New York.

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