The Stock Market Has Further to Fall, Technical Analysts Say. Here’s How Much.

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The stock market has gotten in a bad way—again.

While investors might be tempted to start buying now, more pain is likely on its way, the market’s chart watchers say.

About 90 minutes before the end of the trading day, the

S&P 500
was down 3.2%, to 3,776.93, a level that would be a bear market if the index closed there. A bear market is defined as a drop of 20% or more and any level below 3837 would put it there.

With the market down so much, it may feel like things can’t get much worse. But the harsh reality is that the S&P 500 is showing clear signs of weakness that have it on a path for more losses. 

Technical analysts watch charts and other metrics to try to think about where the market could be headed next. It isn’t just “voodoo,” as some have remarked in the past, but an attempt to assess supply and demand as investors buy and sell stocks.

Right now, the selling isn’t relenting even after dropping 3% Friday. The downward momentum may not have peaked yet, wrote Jonathan Krinsky, chief market technician at BTIG.

That’s especially true now that the stock market has broken support at just over 3800. Had the index bounced from that level, it could have mounted another short rally, wrote Ari Wald, head of technical analysis at Oppenheimer & Co.

Instead, the index fell below that level, and market indicators “haven’t attained a deep enough condition to suggest that a major low has been formed,” Wald added.

When support is broken, investors then become unsure of where the floor will be. Bensignor says the index could quickly drop another 4% to 3617, his “monthly base line.”

But the declines could conceivably be much worse than that. It could fall to 3400, Krinsky wrote, given its trajectory lower since June 2. That’s another roughly 10% decline from the index’s current level, and just around the index’s level right before the Covid-19 crash that began in February 2020.

“Last week is a reminder that the risk continues to be to the downside,” he wrote. “The odds of a ‘June Swoon’ straight to 3,400 have gone up significantly.”

And if that’s not bad enough, Evercore’s head of technical analysis, Rich Ross, says the S&P 500 can fall to 3250, the July 2020 peak, and the next target if 3400 should break.

“Our 3,500 base case is optimistic, with rising risks to 3,250.” Ross wrote.

Sometimes—believe it or not—the best thing investors can do is to sit on their hands until the worst of the damage is done.

If only it were obvious where that would be.

Write to Jacob Sonenshine at [email protected]