The S&P 500 on Tuesday closed below its 50-day moving average for the first time since March. It could portend more losses for the index, technical analysts said, suggesting that the summertime stock-market selloff isn’t over yet.
After trending lower all session, the index SPX closed down 51.86 points, or 1.2%, to 4,437.86 on Tuesday, its lowest closing level since July 11, according to FactSet data.
It also marked the first time the index has finished below its 50-day moving average, a closely watched gauge of momentum, since March 28, according to Dow Jones Market Data. That snapped a 96-day streak of closes above the 50-day, the index’s longest since a 102-session streak ended on Sept. 17, 2020.
Stocks have been sliding since late July, a selloff that analysts have blamed on a number of fundamental and technical factors, including rising long-dated Treasury yields which have put pressure on stock valuations, along with a firmer U.S. dollar.
The largest U.S. companies also failed to meet the market’s high bar for corporate earnings during the quarter ended in June, despite surpassing Wall Street’s generally conservative forecasts.
The break below the 50-day followed another troubling technical signal from Friday, when the S&P 500 capped off a two-week losing streak that saw it shed 118.18 points, or 2.58%. That marked the largest two-week point and percentage decline since the week ending March 17, according to Dow Jones data.
Meanwhile, the Nasdaq 100 NDX, the best-performing major U.S. equity index year to date, also fell for a second straight week, the first back-to-back weekly losses for the high-flying, tech-heavy gauge since December.
Breaking below the 50-day was just the latest momentum signal portending more losses for stocks in the near term, analysts said.
Market technician Katie Stockton, founder of Fairlead Strategies, told MarketWatch that several medium-term momentum gauges have deteriorated since the start of August as stocks have moved lower.
“There’s probably some longevity to this corrective phase, but maybe weeks not months,” Stockton told MarketWatch during a phone interview Tuesday.
Others agreed with that view. Of particular concern for stocks are historical seasonal trends that analysts believe could keep the pressure on through the end of September.
Dow Jones data shows September is historically the worst month for S&P 500 performance dating back to 1928 (data before the index’s creation in 1957 is based on a historical reconstruction of its returns), with stocks falling more than 1.1% on average in September. August, meanwhile, is historically a middling month for the index producing an average gain of 0.67%, making it the fifth-worst month.
Momentum indicators like the 50-day and 200-day moving averages have been reliable signposts for market performance since the beginning of 2022. Last year, the S&P 500 reliably sold off shortly after touching, or breaking above its 200-day moving average.
To be sure, analysts clarified that the S&P 500 still has a lot of room to fall before analysts start to worry that this year’s bull-market run will give way to fresh lows.
“We’ve got a lot of room to fall. The long-term trend is still solid,” said John Kosar, chief market strategist at Asbury Research, during a phone interview with MarketWatch.
The next meaningful support level for the S&P 500 is 4,325, which roughly corresponds to the highs from August 2022, according to Ari Wald, head of technical analysis at Oppenheimer & Co., and Kosar.
Below that, stocks should find support at 4,200, while 4,100 would be the last line of defense. A break below 4,100 would force analysts to reevaluate the long-term trend that began on Oct. 12, when the S&P 500 logged its 52-week closing low of 3,577.03, according to FactSet.
Instead, the latest pullback is likely an opportunity for investors to buy stocks at more attractive valuations later in the year, analysts said.
“The market was overextended,” Kosar said. “Hopefully we’ll get rid of some of the froth in the market and make for a nice buying opportunity in the fourth quarter.”
To be sure, rising Treasury yields are starting to make some on Wall Street nervous. Should long-dated yields continue to climb, it could create conditions for a larger and more forceful selloff in stocks.
The yield on the 10-year Treasury rose BX:TMUBMUSD10Y 3.9 basis points to 4.220% on Tuesday, the highest level in about 10 months.
“If we move above 4.333% on the 10-year, the next level above that is north of 5%. To me, that’s the wild card,” Kosar added. 4.333% corresponds roughly to the more than 15-year highs for the 10-year yield reached back in October.
