S&P 500 Poised to Open Below 2,800 as Last Line of Defense Looms

(Bloomberg) -- Look out below.

The S&P 500 Index is poised to open under 2,800, a level that has served as technical support during this retreat and prior pullbacks.

The benchmark U.S. stock gauge closed just above that round number in the opening session of the week, but futures have retreated overnight amid fears of an escalation in the U.S.-China trade war.

“Risk-off continues,’’ said Dave Lutz, a managing director at JonesTrading, as the focus remains on “China weaponizing rare earths and the relentless bid in sovereign bonds as slowdown concerns and convexity hedging accelerate.’’

Contracts on the benchmark gauge fell 0.7% in pre-market trading after the index closed at 2,802 Tuesday. A drop of that magnitude at the open would take the cash measure down to 2,782.

A tumble below the threshold leaves the S&P 500 in particular technical stress, according to some strategists, by corroborating the completion of another bearish pattern. That would leave the 200-day moving average, which is less than 1% away, as the last major line of technical defense for U.S. equities.

“Beneath here would confirm the ‘head & shoulders’ top, with support then seen next at 2,785, before the 200-day average,’’ said Credit Suisse Securities head of technical analysis David Sneddon. “Although we would expect an initial bounce from here, our expectation would be to see this removed in due course, with meaningful support then seen next at the 38.2% retracement of the entire 2018/19 uptrend at 2,722.’’

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, Rita Nazareth

©2019 Bloomberg L.P.