Chart Watchers See Risks of S&P 500 Correction Amid War Jitters

For two straight days, US stocks have started deep in the red as the war in the Middle East turned investors risk averse. Both times dip buyers rode to the rescue midday, wiping out much of the earlier drops.Author of the article:You can save this article by registering for free here. Or sign-in if you have an account.(Bloomberg) — For two straight days, US stocks have started deep in the red as the war in the Middle East turned investors risk averse. Both times dip buyers rode to the rescue midday, wiping out much of the earlier drops.Subscribe now to read the latest news in your city and across Canada.Subscribe now to read the latest news in your city and across Canada.Create an account or sign in to continue with your reading experience.Create an account or sign in to continue with your reading experience.It’s a curious market for investors who have turned defensive. For chart watchers, the trading smacks of complacency. Technicians say that some key levels have been tested, and while they have for the most part acted as support, more choppy trading could cause them to erode. The S&P 500 Index tumbled as much as 2.5% to 6,710.42 on Tuesday, briefly breaking below its December low, before closing down about 0.9%. The drop also took the index south of its 100-day moving average, a level that has acted as solid support for the better part of a year.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.For John Kolovos, chief technical strategist at Macro Risk Advisors, that December low around 6,720 is the key level for investors to watch in the near term. A break below that line “increases the probability of revisiting the November lows,” Kolovos said. Traders are also keeping an eye on the 200-day moving average — at around 6,570 — that is typically seen as a longer-term support level. Then come the November lows, about 4% below where the index closed Tuesday. But if that also fails to hold, a slide toward the 6,100–6,200 range and into a correction could be next, according to Kolovos.S&P 500 futures climbed as much as 0.4% in early trading Wednesday, erasing a decline that had reached nearly 0.8% earlier in the session.There are plenty of reasons to expect more volatility too. Chief among them the surge in energy prices that threatens to stoke inflation. The market was already under strain from chaotic trade policies, signs of stress in private credit markets and disruption from AI.A pullback of 10% or more from a recent peak, technically called a correction, occur fairly regularly and are a part of healthy market cycles. However, the last time the S&P 500 entered one was in early 2025, amid worries about trade related uncertainty, economic growth and risks to high-flying tech stocks from the sudden emergence of Chinese AI startup DeepSeek. The tariff chaos that followed in April intensified the selloff. “The last time we really saw meaningful correction was probably last April when the S&P 500 was down almost in bear market territory,” said Mona Mahajan, head of investment strategy at Edward Jones. “Since then we’ve almost risen in a straight line higher.”Volatility too, has been subdued in recent months, at least at an index level. The S&P 500 Index notched its narrowest trading range to start a year since the 1960s through mid February, according to Barclays Plc.“It’s almost like a healthy consolidation instead of a healthy correction, which can be a way that markets take a reset,” Mahajan said.Momentum indicators are also signaling a cautious setup. The S&P 500’s relative strength index has been in a downtrend for months and is hovering around the 43 level. While that’s still above the traditional oversold threshold of 30, it suggests there may be room for further downside before sentiment reaches washout levels. The indicator plunged below 22 back in April before stocks finally bottomed out following Trump’s unveiling of a wide-ranging set of global tariffs.Not all chartists are gloomy. Some suggest a rebound for the S&P 500 back toward 7,000 — a level the index has never closed above — isn’t out of the question.“I’m still in the camp that we’re going above 7,000,” Rich Ross, Evercore ISI’s head of technical analysis, said. Even with a test of the benchmark’s 200-day moving average, the broader bullish uptrend would still be intact, according to Ross.“You gotta give something to get something in this market,” he added.Postmedia is committed to maintaining a lively but civil forum for discussion. 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