Raging bears in stocks slowed at the technical level of the S&P 500

(Bloomberg) — The recent trend in US stocks sent the S&P 500 down below its June bear market low — and then some buyers showed up.

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The S&P 500 fell 2.7% to 3656, below the mid-June low of 3666. It only fluctuated a few points above that level during the session, with buying programmed to halt the decline briefly.

“The buyers strike is right because you can park your money elsewhere,” said Willie Delwich, investment strategist at All Star Charts. “There is a lot of work to be done before we can really feel a great deal of conviction that anything sustainable is emerging.”

Traders watching the charts for clues as to where the decline might ease have identified the June low as a potential support area. A close below that level would wipe out all gains since the end of 2020.

The S&P 500 fell for the fourth day in a row and is on track for its fourth weekly decline in five. The sell-off was unforgiving across sectors: the gauge had closed down more than 400 members on each of the past three days before Friday.

“Technical technologies have fallen out of bed,” Art Hogan, chief market strategist at B Riley, said in a phone call.

Its collapse since August highs has solidified a downtrend channel that has existed since the bull market peak in early January, according to Bloomberg Intelligence’s Gina Martin Adams. “The breakdown below the 3900 support level leaves little to understand for the index as it is on its way to test the June lows,” she wrote in a note.

The Fed made clear this week that it will continue to raise interest rates sharply until officials see signs of easing price pressures. Federal Reserve Chairman Jerome Powell warned that this process would not be “painless” for the labor and housing markets.

Wednesday’s rate hike came with expectations the central bank will have another 1.25 percentage points of tightening in store for investors this year, a much more aggressive pace than investors had anticipated.

Despite the crash, stocks are still far from clear bargains. At its lowest level in June, the S&P 500 index traded with a gain of 18 times, a multiple of more than the lowest valuations seen in all eleven previous bear cycles, according to data compiled by Bloomberg. In other words, if stocks rebound from here, this bear market bottom will be the most expensive since the 1950s.

While investors used to be positioned as if the economy was heading for a soft landing, that is no longer the case, according to Anastasia Amoroso, chief investment strategist at iCapital.

“What the markets really need is the price in the slump because it looks like that’s what the weakness in the labor market will ultimately cost,” she said on Bloomberg TV this week.

She said the market has been trading in a range of 3700, 3800 and 4300 for a while now.

“We may need to see a break below the bottom of this trading range to find very cheap value in the stocks,” Amoroso said. “We’re not there yet, so the trade right now is to be really defensive and get paid while you wait for that market bottom.”

As for the June low, many see an ominous sign in this number.

“Anything less than it now sounds diabolical,” Kim Forrest, founder and chief investment officer at Bouquet Capital Partners, said in an interview.

(Price updates throughout.)

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