Bottom-fishing funds step in to support the market; S&P 500 technicals still flashing yellow light

For two consecutive trading days, U.S. stocks opened sharply lower. Middle East hostilities prompted investors to collectively turn toward safe-haven assets. Meanwhile, on the same two consecutive days, bargain hunters stepped in during trading hours and mounted a rescue of the market, wiping out most of the declines that had occurred earlier.

For investors who have shifted from offense to defense, the current market is confusing. But from a technical perspective, this kind of trading behavior signals a sense of being overconfident. Technical analysts noted that some key support levels have already been tested. Although in most cases those levels are ultimately held, if a choppy range continues, the supports may gradually break down.

On Tuesday, the S&P 500 plunged as much as 2.5% to 6,710.42 points, briefly falling below December’s low, and then ultimately closed down about 0.9%. The selloff also pushed the index below its 100-day moving average, a level that has been a solid support for the past half year.

John Kholowos, chief technical strategist at Macro Risk Advisory, said that the December low at around 6,720 is a critical level investors should closely watch in the short term. If the market breaks below that line, “the probability of a retest of November’s low will increase.”

Traders are also closely watching the 200-day moving average around 6,570 points, which is typically seen as long-term support.

Further down is November’s low, about 4% below Tuesday’s closing price. But Kholowos believes that if that level cannot be defended, the next move could slide into the 6,100–6,200 range and enter a pullback.

S&P 500 index futures rose by as much as 0.4% in early trading on Wednesday, recouping nearly 0.8% of the prior decline.

The market has plenty of reason to expect more volatility: soaring energy prices may reignite inflation fears; trade policy is in disarray; there are signs of stress emerging in the private credit market; and the disruptions brought by artificial intelligence are weighing on sentiment.

A 10% or greater drop from recent highs is, technically, called a “pullback.” This is quite common and is part of a healthy market cycle. However, the last time the S&P 500 entered a pullback range was in early 2025, when investors worried about trade uncertainty, economic growth, and the threat to the surging tech stocks posed by China’s AI startup DeepSeek, which suddenly took off. Then, the tariff flare-up in April intensified the selling.

Monna Mahajan, head of investment strategy at Edward Jones, said: “The last truly meaningful pullback was probably in April last year, when the S&P 500 nearly slid into bear-market territory. Since then, the index has basically been propelled straight up.”

In recent months, market volatility has also remained low—at least on an index basis. According to data from Barclays, as of mid-February, the S&P 500’s trading range since the start of the year was the narrowest since the 1960s.

Mahajan said: “This looks more like a healthy consolidation rather than a healthy pullback. The market can reprice through consolidation.”

Momentum indicators have also been sending cautious signals. The S&P 500’s Relative Strength Index (RSI) has been in a downward trend for several months and is currently hovering near the 43 level. Although it is still above the traditional oversold line of 30, it suggests there may be additional downside room before sentiment reaches outright pessimism.

In April last year, the indicator fell below 22, and only after Trump announced a series of broad global tariffs did the stock market finally hit bottom.

Not all technical analysts are bearish. Some believe a rebound of the S&P 500 back to 7,000 is not out of the question, even though the index has never closed above that level.

Rich Ross, chief technical analyst at Evercore ISI, said: “I still like the odds of a breakout of the index above 7,000 points.” He believes that even if the 200-day moving average is tested, the overall uptrend remains intact. “In this market, there are gains to be made when there are sacrifices.”