The 3-day plunge in US stocks won't derail the longer-term bull market, JPMorgan technical strategists say

Associated PressTrader Peter Tuchman works on the floor of the New York Stock Exchange Monday, March 16, 2020. (AP Photo/Craig Ruttle)
  • Investors should view the three-day sell-off in stocks that began last week as a short-term setback within a longer-term bull market, JPMorgan said in a note on Wednesday.
  • The decline in the broad indexes, led by technology stocks, hasn’t let to critical support levels being violated, and comes after the indexes were in overbought conditions.
  • The absence of euphoric sentiment readings among investors is one more reason leading JPMorgan to believe that the recent market sell-off will be temporary.
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The three-day sell-off that began last week is just a “setback within a bull trend,” according to JPMorgan.

In a note published on Wednesday, JPMorgan explained that the technicals behind the near 10% sell-off in the S&P 500 lack the traditional patterns found at a market top.

“The absence of trend deceleration, a broad distribution pattern, and/or euphoric sentiment readings” leads JPMorgan to view the tech-driven sell-off as a healthy pullback from overbought momentum conditions, according to the note.

JPMorgan expects the S&P 500 to “find its footing” near a confluence of support at 3,305 to 3,223, representing downside potential of 1% to 3% from Tuesday’s close, respectively.

A decline to JPMorgan’s technical support level of 3,233 would represent a peak-to-trough fall of 10%, which would be the S&P 500’s first correction since it emerged from pandemic lows on March 23.

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For the market to stage a sustainable rebound and continue to make new highs in this bull market, the S&P 500 would need to rise above the 3,455 to 3,494 range “to regain traction,” JPMorgan said.

For the tech-heavy Nasdaq 100 index, JPMorgan expects short-term support to be found at 11,000 to 11,400. Below that, the firm sees medium-term support for the Nasdaq at 10,313 to 9,736, representing potential downside of 5% to 10% from Tuesday’s close.

In Wednesday trades, the Nasdaq gained 1.8% to 11,044, well within the support range highlighted by the bank.

“The lack of a clear top pattern signals this is a setback and not the end of the 2020 bull trend,” JPMorgan concluded.

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