S&P 500 Is on ‘Precipice,’ May Extend Drop: Technical Analysis

By Adam Haigh

Jan. 27 (Bloomberg) -- The Standard & Poor’s 500 Index may extend its decline from the peak of the rally to 9.6 percent if a key support level is breached, according to the head of technical analysis at Mint Equities Ltd.

The S&P 500 closed at 1,092.17 yesterday, 5 percent below the 15-month high of 1,150.23 on Jan. 19. If the benchmark gauge for U.S. equities breaches the level at 1,087 to 1,091, the next support is at 1,040, 4.8 percent below yesterday’s close, according to Mint’s Geoff Wilkinson.

“We now stand on the edge of a proverbial precipice,” Wilkinson, who is based in London, wrote in a note to clients today. Investors who are betting that the market will rally might get “stranded by the sheer pace of the recent declines and, with the lack of any ‘get out of jail free’ subsequent recovery, start to reach for the ‘panic’ button.”

Technical analysts use price and volume history to predict levels of possible support against further declines or resistance to gains. The S&P 500 posted its biggest three-day slump in 10 months last week, erasing its gains for the year, amid concern China’s curbs on lending will slow the global economy’s rebound from its first recession since World War II.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net.