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The S&P 500 could experience a 5% decline and test a critical support level, says Bank of America.
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Bank of America’s Michael Hartnett identifies the S&P 500’s 200-week moving average as a significant threshold.
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This level has historically signaled market bottoms in 2022, 2018, 2016, and 2011.
The S&P 500’s recent 10% decline brings it close to a crucial technical support level, according to Bank of America.
In a note, investment strategist Michael Hartnett highlights 3,941 as a critical level for the S&P 500, which represents its rising 200-week moving average. A drop to this point would mean a further 5% decline from the current level of around 4,143.
The 200-week moving average calculates the average price of the S&P 500 over the past four years, and it has continued to rise since 2012. During periods of market stress over the last decade, the S&P 500 has consistently tested this line.
Sell-offs in 2016, 2018, and 2022 brought the S&P 500 to its 200-week average, after which the index quickly rebounded and continued its upward trend. However, the 200-week moving average was temporarily breached and failed as initial support during the COVID-19 sell-off in March 2020.
As the S&P 500 equal-weight index dropped below a critical level, a further decline to the 200-week moving average seems likely.
Meanwhile, according to Katie Stockton of Fairlead Strategies, the S&P 500 recently broke below a shorter-term technical support level between 4,180 and 4,195.
However, signs indicate that investors are taking advantage of the recent decline in mega-cap tech stocks. Hartnett notes that the tech sector witnessed its largest inflow in eight weeks as investors bought $2.0 billion worth of stocks.
“Investors are ‘buying-the-dip’ in tech,” he said.
Read the original article on Business Insider
