- The US stock market got rocked this week, declining 5.9% over five days, its largest such drop in more than two years.
- The benchmark S&P 500 closed below a key technical support level, and the breach opens up the index to further selling, according to JPMorgan.
After a rough stretch that saw the benchmark S&P 500 fall 5.9%, its biggest weekly drop in more than two years, equity investors are rightfully picking up the pieces and trying to figure out what's next.
If they're looking for good news, they're probably best off steering clear of the latest research from JPMorgan's technical analysis team. According to strategist Jason Hunter, the index's plunge below a key support level on Friday has left it exposed to far greater downside.
He's referring to 2,610, which was the bottom boundary of a support range Hunter laid out in a recent note to clients. The S&P 500 closed Friday at 2,588.26, well below JPMorgan's technical threshold, confirming the breach.
Hunter's analysis suggests the next support level for the benchmark will be in the mid-2,500s - roughly 3-4% below its current level. He specifically highlights the 2,541-2,557 range that marks the index's October-November 2017 lows, as well as its recent intraday low of 2,533 reached on February 15.
JPMorgan
This technical dynamic already played out to a degree in late trading on Friday. With about two hours left until the close, the S&P 500 began flirting with the 2,610 level. After sustaining a move below that technical area, selling accelerated into the close, and the benchmark wound up finishing the day at session lows.
That drastic decline and the subsequent technical selling pressure is a direct threat to Hunter's base-case forecast, which calls for the S&P 500 to recover and hit new highs in the second quarter. Prior to Friday's turbulence, he was optimistic about the prospects of a full rebound, but he's likely calibrating his model to the downside now.
So what can traders do? Perhaps most actionable in the near term is Hunter's suggestion that traders start to scale back equity holdings - a recommendation he made contingent on the 2,610 breach we just saw.
