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Bank of America warns of a sharp decline if the S&P 500 falls below its 200-day moving average.
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Bank of America said that if the stock market falls below this limit, there could be a 10% correction.
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Key sectors such as semiconductors and big tech companies should maintain their support levels to avoid further declines.
Investors can expect a sharp decline in the economy if Standard & Poor’s 500 It is falling below a key technical level, according to a note on Thursday from Bank of America Strategist Michael Hartnett.
Hartnett highlighted the S&P 500’s 200-day moving average as a key line in the sand that would indicate whether the economy is headed for a deeper downturn.
“The technical levels that would flip the Wall Street narrative from soft to hard haven’t been broken… 4% on the 30-year Treasury, 400 basis points on the HY CDX, and 5050 on the S&P 500,” Hartnett said.
The 5050 level on the S&P 500 corresponds to the 200-day moving average. As of Friday, the S&P 500 was trading at 5317, or about 6% above the 200-day moving average.
“It is now important for stock leaders SOX (4600) and XLK (200) to hold the 200DMA levels… If the levels are broken, traders will be targeting the 2021 highs (i.e. 10% lower),” Hartnett said.
Both the SOX Semiconductor Index and the XLK ETF tested their 200-day moving averages as technical support levels earlier this week during Increased market volatility before it rises again.
While key technical support levels in the stock market have yet to be breached, Hartnett is cautious in his outlook for the U.S. economy and stock market.
For a soft landing to happen, things have to go right, including the Fed cutting interest rates and lowering interest rates boosting investor sentiment.
But price action in certain areas of the stock market is not encouraging, according to Hartnett.
“The price action in biotech (longest-running stock) has not been good and there is no upside yet for US retail stocks (consumer discretionary at 12-year relative lows),” Hartnett said.
Hartnett is sticking to his rules of selling stocks after the Fed delivers its first rate cut, which is expected to happen at its policy meeting next month.
“We’re still in the sell-first camp,” Hartnett said, adding that he sees increasing risks in AI-related stocks as they grow. Race to show ROI From their massive spending on GPU.
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