Why stock market bears are eyeing June lows after S&P 500 dips below 3900

Goodbye, summer bounce.

The S&P 500 finished Friday below the crucial chart support level that’s been a battleground in recent years, leading technical analysts to warn of a possible test of stock market lows in June.

“Over the past three years, at the level of [S&P 500] It closed below that on Friday for the first time since July 18, which, in our view, opens the door for the first time since July 18, Jonathan Krinsky, chief market technician at BTIG, said in a note on Sunday (see chart below). down to June lows” near 3640. .

BTIG

S&P 500 SPX Index,
-0.72%
It’s over on Friday at 3,873.33 – down 0.7% on the session and 4.8% for the week, hitting its lowest close since July 18. It left the index up 5.7% from its June 16 closing low of 3666.77. The S&P 500 hit an intraday low of 3,636.87 on June 17, according to FactSet.

Dow Jones Industrial Average DJIA,
-0.45%
It fell 4.1% last week to end Friday at 30,822.42, while the Nasdaq Composite was down,
-0.90%
It saw a weekly decline of 5.5% to 11,448.40. ES00 stock index futures,
+ 0.13%

YM00,
+ 0.14%

NQ00,
-0.06%
Trading was flat with a slight uptick on Sunday evening.

Kreinsky writes that a return to June lows likely won’t be a straight line, but the lack so far of the notable “panic” in the Cboe VIX volatility index,
+ 0.11%
He said the futures curve and the lack of a dip in more extreme oversold conditions as measured by the monthly RSI don’t bode well.

Other analysts noted no sharper rise in the spot VIX index, which is often referred to as Wall Street’s “fear gauge.” The options-based VIX finished Friday at 26.30 after trading higher at 28.42, above its long-term average near 20 but well below panic levels often seen near market bottoms above 40.

Stocks rebounded sharply from June lows, which saw the S&P 500 drop 23.6% from its record Jan. 3 end of 4,796.56. Krinsky and other chart watchers noted the S&P 500 in August It completed a retracement of more than 50% of its decline from the January high to the June low – a move in The past was not followed by a new low.

However, Kreinsky cautioned at the time against chasing the bounce, writing on August 11 that “tactical risk/reward looks bad to us here.”

Michael Kramer, founder of Mott Capital Management, had warn in note Last week, a close below 3900 would test support at 3,835, “where the next big gap to fill in the market lies.”

Stocks fell sharply last week after Tuesday’s reading on the August CPI showed inflation Running hotter than expected. The data reinforced expectations that the Federal Reserve will deliver another significant rise of 75 basis points, or 0.75 percentage points, in the fed funds rate, with some traders and analysts100 basis points high When policy makers complete a two-day meeting on Wednesday.

Preview: The Fed is ready to tell us how much “pain” the economy will suffer. However, they still do not hint at stagnation.

The market’s rebound from the June lows came as some investors increased confidence in the Goldilocks scenario where Fed policy tightening would wipe out inflation in a relatively short period. For the bulls, the hope was that the Fed would be able to “pivot” away from interest rate increases, and avoid a recession.

Stubborn inflation readings have left investors raising expectations of where they think rates will be on top, fueling fears of a recession or sharp slowdown. Tight tightening by other major central banks has raised fears of a widespread global slowdown.

We see: Can the Fed Tame Inflation Without Crushing the Stock Market? What investors need to know.

Hear from Ray Dalio in The best new ideas at the Money Festival On September 21 and 22 in New York. The hedge fund pioneer has strong views on the direction the economy is headed.

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