Technical Analysts See S&P 500 Dropping to at Least 3400

October 3, 2022 7:21 AM EDT
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The S&P 500 fell over 9% in September to push its YTD losses to almost 25%. According to Bank of America’s data, this marks the fourth weakest return through Q3 since 1928.

The benchmark U.S. index closed at 3,585.62 on Friday with some analysts calling for even lower levels this week as investors prepare for the much-anticipated NFP release on Friday.

Jonathan Krinsky, Chief Market Technician at BTIG, believes the S&P 500 falling to 3400 is “likely needed for capitulation.

“We don’t think 3,589 will mark the low, and could see a possible overshoot towards 3,400 before a more durable low forms later in October. Credit spreads continue to widen, European CDS are back to covid-wides, and while the DXY and 10yr yields have put in potential peaks, it's too soon to call 'the' peak. It's true that bulls have left the building, that doesn’t mean it’s an easy buy,” Krinsky told clients in a note.

Similarly, Bank of America’s Stephen Suttmeier noted that the S&P500 ended September below its declining 12-month MA near 4256.

“This marked the sixth consecutive monthly close below the 12-month MA. Peak to trough SPX declines associated with six or more consecutive monthly closes below to the 12-month MA average 33.1% (28.5% median decline). This equates to the SPX moving into the 3450 to 3220 range,” Suttmeier added in a client note.

Moreover, the index closed below the rising 200-week MA at 3589, which is likely to increase selling pressure this week. Suttmeier urges investors to pay closer attention to these trading levels: the 50% retracement of March 2020 to January 2022 rally near 3500, a downside projection in the low 3400s, and the 61.8% retracement near 3200.

On the upside, the analyst highlights the 9/23 downside gap at 3727-3750 that will now act as resistance.

By Senad Karaahmetovic

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Standard & Poor's, BTIG, BofA/Merrill Lynch, Senad Karaahmetovic