REUTERS/Philip Massie
- The S&P 500 is headed towards a level that would trigger a "wave of selling," according to technical analysts at UBS.
- They forecast that the next leg down in stocks could begin as soon as next month.
- Watch the S&P 500 in real time.
The S&P 500 is headed towards a level that would prompt a new wave of selling, according to technical analysts at UBS.
Michael Riesner and Marc Müller said in a note Wednesday that the 2,580 mark became an even more important threshold after the S&P 500 slumped Friday into a support zone - a price region at which traders are usually expected to reverse a stock's downward move.
As technical analysts, they study chart patterns to anticipate where markets may go next.
The S&P 500 recorded its top tick of the year on January 26 and then slumped into its first 10%-plus correction in two years.
After bottoming for the year during trading on February 9, it stalled again about a month later. And for Riesner and Müller, the March 13 intraday high of 2,802 represented the starting point for a "second correction cycle into early summer."
But they don't expect the move lower to be without interruptions.
"Tactically, with being oversold, and on track with our cyclical model, we expected the US market to bounce from its early April trading low into deeper/later April before starting its next down leg in May," Riesner and Müller said in a note Wednesday.
Last week Friday, the S&P 500 fell to as low as 2,586.27, into a support zone between 2,593 and 2,533 they said.
"This is very important from our potential May correction scenario since from a sentiment standpoint (and taking into account that so far we haven't seen any real selling let alone a washout/panic sell-off) it suggests that regardless of any timing, a break of 2580 would very likely trigger a wave of selling, which makes 2580 a real cliff for the SPX!!"
They're also keeping tabs on the McClellan Oscillator, which tracks the difference between the number of advancing and declining stocks on the New York Stock Exchange. It's returned into neutral territory, suggesting to the analysts (as of Tuesday when stocks rallied) that the bounce may continue into the end of April at best.
"So regardless whether it's an investor or our suggested aggressive trading call, we would use further strength to sell/take profit instead of chasing the market on the upside," they recommended.
UBS