If bulls don’t step up, the next step for the stock market might be a bit of a doozy.
Stocks extended early weakness Monday, sending the S&P 500 SPX, -0.39%[1] temporarily below closely watched psychological support at 2,600. But a more crucial support level was tentatively broken as the U.S. equity benchmark fell through 2,616.
“In my mind the theoretical cliff’s edge is the 2635 to 2616 area …,” wrote Rick Bensignor, president of Bensignor Investment Strategies, in a note ahead of Monday’s open. A close below that level would set the stage for more downside, he said.
Read: A death cross for the S&P 500 highlights a stock market in tatters[2]
“Bulls either muster the strength here and now to fully defend this zone, or we likely witness a swift ‘kerplunk-ing,’ and a move to new 2018 lows as we close out the final three trading weeks of the year,” he wrote....
The 2,635 to 2,616 area marks “the most recent daily TDST level down to the bearish Propulsion Full Exhaustion level,” Bensignor wrote (see chart above), referring to a pair of timing models developed by technician Tom DeMark. The index was trading at 2,622 in recent action[3], after trading as low as 2,563.29, its lowest intraday level since April. The Dow Jones Industrial Average
DJIA, -0.45%[4]
fell more than 500 points at its session low but was off around 130 points, or 1.3%, in recent action near 24,207, after trading below 24,000 for the first time since May. The S&P 500 and Dow both fell into negative territory for the year to date last week. In a phone interview, Bensignor said that while the closing level is key, he’s confident that the market has suffered enough damage to ensure continued selling and all but kill any expectation for a so-called Santa Claus rally into year-end[5]. Bensignor said he isn’t looking for a “huge decline” but sees scope for a test of the 2,511-to-2,473 area for the S&P 500 — a 4.6% to 6.1% decline from Friday’s closing level. The analyst said the downside move had the potential to mirror the index’s upside rally in September, which saw it exceed the 2018 high set in January by a few percentage points. This time around, the index could do the same to the downside, modestly exceeding the February low. References^ SPX, -0.39% (www.marketwatch.com)^ A death cross for the S&P 500 highlights a stock market in tatters (www.marketwatch.com)