Investor risk appetite has cooled due to conflicts in the Middle East, leading U.S. stocks to open significantly lower for two consecutive sessions. However, bargain-hunting buyers entered the market during the afternoon on both days, helping to recover most of the earlier losses.
For investors shifting toward defensive strategies, the current market trend presents a delicate situation. In the eyes of technical analysts, recent trading activity reflects a sense of blind optimism. Experts note that several key technical levels have been tested. While these levels have largely held as support so far, more volatile trading could gradually erode these supports.
The S&P 500 fell as much as 2.5% on Tuesday to 6,710.42, briefly dipping below its December low, before closing down approximately 0.9%. The decline also pushed the index below its 100-day moving average, a level that has served as strong support for most of the past year.
John Kolovos, Chief Technical Strategist at Macro Risk Advisors, stated that the December low near 6,720 is a key level for investors to watch in the short term. Kolovos indicated that a break below this level would "increase the probability of the index revisiting the November lows."
Traders are also monitoring the 200-day moving average—around 6,570—which is typically viewed as a long-term support level.
The November low is approximately 4% below Tuesday's closing level. Kolovos added that if that level fails to hold, the index could next fall into the 6,100–6,200 range, which would push it into correction territory.
S&P 500 futures were up 0.4% in early trading on Wednesday, erasing a nearly 0.8% decline from earlier.
There are ample reasons to expect more market volatility ahead, chief among them being soaring energy prices, which could further fuel inflation. The market is already under multiple pressures: chaotic trade policies, signs of stress in the private credit market, and the industry disruption caused by artificial intelligence.
A decline of 10% or more from a recent peak is technically defined as a correction. Such moves are relatively common and form part of a healthy market cycle. However, the S&P 500 last entered a correction in early 2025, driven by concerns over trade uncertainty, slowing economic growth, and the risks posed to high-value tech stocks by the sudden rise of Chinese AI startup DeepSeek. A flare-up of import tariff chaos in April of that year further intensified the sell-off.
Mona Mahajan, Investment Strategist at Edward Jones, commented, "The last significant correction we had was around April of last year, when the S&P 500 nearly entered bear market territory. Since then, the market has largely trended upward in a one-way move."
Market volatility has also remained low in recent months, at least at the index level. Data from Barclays showed that as of mid-February, the S&P 500 had recorded its narrowest intra-year trading range since the 1960s.
Mahajan noted, "This looks more like a healthy consolidation than a deep correction, allowing the market to complete its breather."
Momentum indicators are also flashing cautionary signals. The S&P 500's Relative Strength Index (RSI) has been trending downward for months and is currently hovering around 43. While still above the traditional oversold threshold of 30, this suggests there may be further room for stock prices to fall before market sentiment bottoms out.
In April of last year, following the announcement of a global import tariff package, the RSI plunged below 22 before the stock market ultimately found a bottom.
Not all technical analysts are pessimistic. Some believe that a rebound in the S&P 500 to 7,000—a level the index has never closed above—is not out of the question.
"I still think we break above 7,000," said Rich Ross, Head of Technical Analysis at Evercore ISI. Ross believes that even if the index tests the 200-day moving average, the overall bullish uptrend remains intact.
"In this market, you have to give something to get something," he added.
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