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The S&P 500 Tumbles Through Key Thresholds

The S&P 500 Tumbles Through Key Thresholds

(Bloomberg) -- Dip-buying is drying up.

The dry powder deployed earlier this month, which helped the S&P 500 stay above 2,800 as well as its 200-day moving average during the re-emergence of the U.S.-China trade war, was conspicuously absent Wednesday as the benchmark stock index dropped below the technical-support levels to the lowest in 11 weeks.

There’s another sign that the tenor of the sell-off is changing. For the past two weeks, it was marked by sharp overnight losses that were greeted as buying opportunities during regular trading hours. The S&P 500 actually posted an average gain when measured from open to close, instead of the traditional close to close.

In the past five days, though, the measure is averaging a worse showing during the day, the first time that’s happened since May 3, the Friday before President Donald Trump ratcheted up the trade conflict.

The S&P 500 Tumbles Through Key Thresholds

“On Tuesday, once stocks were not able to hold a bid, investors started conversations with the phrase -- here we go again!’’ wrote Wells Fargo head of U.S. equity strategy Christopher Harvey. “We expect equities to move lower before they go higher and we don’t think you’ll need to wait too long.’’

Analysts at Bespoke Investment Group observed that the reversal in U.S. equities Tuesday marked the first time in 2019 the S&P 500 traded as much as 0.5% higher and proceeded to end the day more than 0.75% lower.

“For nearly the first five full months of the year intraday sell-offs of any discernible magnitude had been nearly non-existent during normal trading hours,’’ they wrote. “Just as important, it suggests that the corrective phase the market has been in since early 2018 remains alive and well.’’

Bank of America’s client flows data for the week of May 20 showed less incremental money being put to work, confirming the waning enthusiasm for the struggling stock market. Equity and quant strategist Jill Carey Hall notes that while hedge funds increased their exposure to the market, institutional clients turned net sellers and retail clients sold stocks for the second consecutive week.

This dearth of dip-buying was on full display again on Wednesday, with the S&P 500 Index opening 0.4% lower before tumbling as much as 1.3% lower by noon in New York.

To contact the reporter on this story: Luke Kawa in New York at lkawa@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Randall Jensen

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