S&P 500 Drop Casts Eyes on Technical Level Another 11% Down

(Bloomberg) -- U.S. stocks may have fallen 13% in the past seven sessions, but never fear, there's a bastion of support. It's just another 11% further below.

The S&P 500 Index closed at 2,954 on Friday, after having fallen as low as 2,856 early in the session. The ferocity of the multiday decline saw the gauge blow post its standard daily moving averages. So technical gurus have had to reach even further back to find the levels likely to be key from here -- and there's one in particular that they're watching.

If Friday's S&P 500 futures low of 2,853 fails, “there is 7%-10% downside from current levels to 2,630, where prior mini-recessions have ended at the 200-week moving average,” Rich Ross, a technical analyst at Evercore ISI, wrote in a note Sunday. He added that the 2,853 level should serve as “the new line in the sand,” though.

S&P 500 futures swung by more than four percentage points in volatile trading Monday. They were down 1% as of 7:18 a.m. in New York at 2,922.

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“If the market does roll back over at any time over the coming weeks and months, the most important support level for the S&P will be its 200-week moving average” given its “rock solid” support since the financial crisis, said Matt Maley at Miller Tabak + Co. “If (repeat, if) the stock market sees another scary leg lower, the 200-week moving average should provide excellent support. Even if it is eventually broken, for whatever reason, it should help the stock market bounce over the near term.”

But while the 200-week average is seen as likely support, it isn't impermeable. And Maley sees reason for pessimism if the gauge does go below that level in a significant way.

“If it is broken in any material fashion, it will signal that we're looking at the kind of disastrous bear market that is similar to the ones we saw in 2000-2003 and 2007-2009,” he warned.

--With assistance from Dave Liedtka.

To contact the reporter on this story: Joanna Ossinger in Singapore at jossinger@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Cecile Vannucci, Margo Towie

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