Heaviest volume over last 3 years seen at the 3,900 level: BTIG’s Krinsky
Goodbye, summer bounce.
The S&P 500 finished Friday below a crucial chart support level that’s served as a battleground in recent years, leading technical analysts to warn of a potential test of the stock market’s June lows.
“Over the last three years, the level on the [S&P 500] with the most amount of volume traded has been 3,900. It closed below that on Friday for the first time since July 18 which, in our view, opens the door down to the June lows” near 3,640, said Jonathan Krinsky, chief market technician at BTIG, in a Sunday note (see chart below).
The S&P 500 SPX, -0.72% ended Friday at 3,873.33 — falling 0.7% in the session and 4.8% for the week for its lowest close since July 18. That left the index up 5.7% from its June 16 closing low of 3,666.77. The S&P 500 logged an intraday low for the selloff at 3,636.87 on June 17, according to FactSet.
The Dow Jones Industrial Average DJIA, -0.45% fell 4.1% last week to end Friday at 30,822.42, while the Nasdaq Composite COMP, -0.90% saw a 5.5% weekly drop to 11,448.40. Stock-index futures were trading flat to slightly higher Sunday evening.
A move back to the June lows likely won’t be a straight line, Krinsky wrote, but the lack so far of discernible “panic” in the Cboe Volatility Index VIX, +0.11% futures curve and the lack of a drop to more extreme oversold conditions as measured by monthly relative strength index don’t bode well, he said.
Stocks fell sharply last week after a Tuesday reading on the August consumer-price index showed inflation running hotter than expected. The data cemented expectations for the Federal Reserve to deliver another supersize 75-basis-point, or 0.75-percentage-point, rise in the fed-funds rate, with some traders and analysts penciling in a 100-basis-point hike when policy makers complete a two-day meeting on Wednesday.
The market’s bounce off its June lows came as some investors had grown more confident in a Goldilocks scenario in which the Fed’s policy tightening would wring out inflation in relatively short order. For bulls, the hope was that the Fed would be able to “pivot” away from rate increases, averting a recession.
Stubborn inflation readings have left investors to raise expectations for where they think rates will top out, heightening fears of a recession or sharp slowdown. Aggressive tightening by other major central banks has stoked fears of a broad global slowdown.
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