U.S. stock markets have suddenly turned volatile, with traders scrutinizing technical charts for clues on where the current sell-off might pause.
Doubts over whether "multi-billion-dollar AI investments will yield returns," coupled with still-elevated stock valuations, drove the S&P 500 (^GSPC) to 6,720.32 on Thursday, its lowest level in two weeks. Technical analysts note that from current levels, the 50-day moving average at 6,665 has emerged as a critical support line.
Tyler Richey, a technical analyst and editor of the Sevens Report, pointed out that a breach below this level (6,665) would signal "technical cracks appearing." Conversely, a rebound above the 21-day moving average at 6,748.10 could reignite risk appetite in the market.
While investors rarely rely solely on technical analysis, chart patterns provide valuable insights into potential market inflection points. With the government shutdown halting official economic data releases, earnings season past its peak, and lingering uncertainty over the Federal Reserve's policy path, technical analysis has gained heightened importance.
The S&P 500 has logged at least a 0.99% daily decline in three of the past six trading sessions and is now down 2.5% from its last record high. The CBOE Volatility Index (VIX) has climbed to around 20.
"The market is at a critical juncture," Richey remarked.
On Thursday, data from Challenger, Gray & Christmas showed that corporate layoffs hit their highest October level in over two decades as AI-driven cost-cutting accelerated, prompting traders to exit positions. Further exacerbating uncertainty are concerns that high valuations of tech giants may have reached unsustainable levels. The Bloomberg Magnificent Seven Price Return Index fell 2% on Thursday, marking its third such drop in six sessions.
Before the 50-day moving average comes into play, the next key technical threshold is the psychological 6,700 level. Brent Kochuba, founder of SpotGamma, suggested that heavy open interest in S&P 500 options at the 6,700 strike could provide much-needed support—at least in the short term. A high concentration of options at a specific level often prompts traders to buy contracts to hedge against downside risks, thereby stabilizing prices near that level.
JPMorgan (JPM) strategists identified the 6,740–6,800 range as a critical technical resistance zone for the S&P 500, with 6,640 serving as a more pivotal mid-term support level. Strategists including Jason Hunter warned that a break below 6,640 would send a clear bearish signal.
Maxwell Grinacoff, head of U.S. equity derivatives research at UBS (UBS), noted an uptick in hedging activity over the past month. He highlighted that the VIX has hovered near the key 20 level since mid-October. On Thursday, the Nasdaq-100 Volatility Index (VXN) climbed to around 25.
The sell-off comes as earnings season winds down and the government shutdown leaves investors reliant on private-sector data. The next potential market-moving event will be NVIDIA's (NVDA) earnings report on November 19.
"Risks are mounting, and investors are responding with hedging," Grinacoff said. "I believe market participants are well aware that fragility is rising."