For two consecutive trading sessions, U.S. stocks opened with steep declines as Middle East conflicts prompted a collective shift toward safe-haven assets among investors. Yet, on both days, dip buyers emerged during the session, erasing a significant portion of the earlier losses. For investors who have shifted to a defensive stance, the current market presents a confusing picture. However, from a technical perspective, this type of trading activity signals complacency.
Technical analysts point out that several key support levels have been tested. Although most have held thus far, continued volatility could lead to a gradual erosion of these supports. On Tuesday, the S&P 500 plunged as much as 2.5% to 6,710.42, briefly falling below its December low, before closing down approximately 0.9%. This decline also pushed the index below its 100-day moving average, a level that had served as solid support for much of the past year.
John Kolovos, Chief Technical Strategist at Macro Risk Advisors, indicated that the December low near 6,720 is a critical level for investors to monitor closely in the near term. A breach of this level would "increase the probability of a retest of the November low." Traders are also watching the 200-day moving average around 6,570, which is typically viewed as a long-term support level. Further below lies the November low, approximately 4% below Tuesday's closing price. Kolovos suggests that if even that level fails to hold, the next potential decline could be into the 6,100-6,200 range, entering a technical correction.
S&P 500 futures rose as much as 0.4% in early Wednesday trading, recovering from a nearly 0.8% drop earlier. There are ample reasons to expect further volatility: soaring energy prices potentially rekindling inflation, chaotic trade policies, signs of stress in the private credit market, and the impact of artificial intelligence are all weighing on the market.
A decline of 10% or more from a recent peak is technically defined as a "correction," a fairly common occurrence and part of a healthy market cycle. However, the S&P 500's last entry into correction territory was in early 2025, driven by concerns over trade uncertainty, economic growth, and the threat posed by the sudden rise of Chinese AI startup DeepSeek to high-flying tech stocks. Subsequent tariff tensions in April exacerbated the sell-off.
Mona Mahajan, Investment Strategist at Edward Jones, noted, "The last real correction was probably back in April of last year, when the S&P 500 nearly entered bear market territory. Since then, the index has essentially rallied in a straight line." 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's trading range year-to-date was the narrowest since the 1960s. Mahajan commented, "This looks more like healthy consolidation than a healthy correction. The market can reprice itself through consolidation."
Momentum indicators are also sending cautious signals. The S&P 500's Relative Strength Index (RSI) has been in a downtrend for several months and is currently hovering around 43. While still above the traditional oversold threshold of 30, this suggests there might be more room for decline before sentiment becomes thoroughly pessimistic. In April of last year, the RSI dropped below 22 before the market finally bottomed, following the announcement of a series of broad global tariffs by then-President Trump.
Not all technical analysts are bearish. Some argue that a rebound in the S&P 500 to the 7,000 level is not impossiblecosa, even though the index has never closed above that level. Rich Ross, Head of Technical Analysis at Evercore ISI, stated, "I remain bullish on a breakout above 7,000." He believes that even if the 200-day moving average is tested, the overall bullish trend remains intact. "In this market, you have to give something to get something."
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