Just like that, all the confidence in the stock market is zapped

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A few days ago, it seemed like all people wanted to talk about in the stock market was the sturdiness of last week’s low. It took one session and a 4.4% plunge in the S&P 500 to give the confidence a serious shake.

Not that the low is under any immediate threat — the benchmark would have to fall another 9.4% to get its level on March 23. But it’s nevertheless impressive how quickly a two-day, 6% plunges affects the tone of bulls.

Anxiety came roaring back Wednesday, spurred by the growing realization the economy will be shuttered for much longer after President Trump’s warning that Americans have “a painful two weeks ahead,” as well as estimates from top doctors that the U.S. may face as many as 240,000 deaths. The S&P 500 fell 4.4% to 2,470, zapping 40% of the rebound.

Strategists at JPMorgan Chase were are among those who said U.S. equities have probably seen their worst. Peers at Morgan Stanley said the S&P 500 won’t be testing its lows any time soon. Forced liquidations are largely over, the thinking went, and an unprecedented amount of fiscal and monetary support would probably be enough to keep the market stable. Those calls remain intact, but suddenly sound less assured.

The funds are also some of the lowest-duration products in the market.
April 1

“There was a lot of hope that we had seen the bottom; a lot of these hopes have been dashed in one swift day,” said Tim Ghriskey, chief investment strategist at Inverness Counsel. “It’s very discouraging for any investor who bought into that rally.”

The S&P 500’s rout accelerated Wednesday after U.S. intelligence sources said China concealed the extent of the virus outbreak and as data showed growing case counts in New York and Italy. Economic reports in Europe continued to disappoint, and concern rose about the coming U.S. earnings season.

Wednesday’s cascade sent technical analysts back to the charts in search of lines of defense that might emerge should the low be tested. Technical analysis is the only way to go when economic data means as little as it does now, says Tallbacken Capital Advisors’ Michael Purves.

Wednesday’s drop pushed the S&P 500 to near 2,462, a 23.6% retracement line plotted between the index futures’ mid-February highs and March lows. The line should give the S&P 500 some support in the short term, Purves said.

To get a sense of where the S&P may trade in the next few weeks, Purves plots the aforementioned short-term retracement next to similar lines that start at the market lows in 2009 and 2016. These technical charts converge near the same levels, 2,200 and 2,600, a range that could define the next few weeks, he said.

“Retracement levels give a rough estimate and shouldn’t be taken too literally, but they can be of help when fundamentals aren’t clear,” Purves said by phone. “We probably have enough algos out there that have some of these levels in mind.”

Evercore ISI technical analyst Rich Ross says the S&P 500 will have to hold in the near-term in the range between 2,416 and 2,460. Instinet LLC.’s senior equity trader and market technician Frank Cappeller is watching 2,450, the level that started last week’s rally.

“An aggressive close below it will nullify the upside target of 2,710, which will maintain the trend of zero successful bullish patterns since mid-February,” he said in a note.

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