The S&P 500 could fall another 5% and test a critical support level that has previously marked the bottom, Bank of America says

• The S&P 500 could fall another 5% to test a critical support level, according to Bank of America.
• BofA's Michael Hartnett highlighted the S&P 500's 200-week moving average as a key line in the sand.
• It has marked the bottom for stocks in 2022, 2018, 2016, and 2011.

The S&P 500's 10% decline since the end of July is putting the index within striking distance of a critical technical support level, according to Bank of America.

Investment strategist Michael Hartnett said in a Thursday note that 3,941 is a key level to watch for the S&P 500, as that represents the index's rising 200-week moving average. A sell-off to that mark would represent another 5% decline from the current level of about 4,143.

The 200-week moving average measures the average price of the S&P 500 over the past four years, and it's been consistently rising ever since 2012. The S&P 500 has had a tendency to test this line during periods of market stress over the past decade.

Market sell-offs in 2016, 2018, and 2022 hit the S&P 500's 200-week average almost to the penny, with the index swiftly bouncing off of that level to then go on and continue its multiyear uptrend.

The 200-week moving average was briefly violated and did not hold as initial support during the COVID-19 sell-off in March 2020.

A continued decline to the 200-week moving average looks more likely as the S&P 500 equal-weight index dipped below a level that Hartnett flagged as critical.

Meanwhile, the S&P 500 recently broke below a shorter-term technical support level: the 4,180 to 4,195 range, according to Fairlead Strategies' Katie Stockton.

But there are signs that investors are starting to take advantage of the recent downturn in mega-cap tech stocks, with Hartnett observing that the tech sector saw its largest inflow in eight weeks after investors purchased $2.0 billion worth of stocks.

"Investors 'buying-the-dip' in tech," he said.