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The Friday selloff in stocks, fueled by Fed Chair Powell’s comments at the Jackson Hole event, has already extended to this week with the U.S. futures down in premarket trading.
Bank of America’s technical strategist Stephen Suttmeier warns that the selloff is likely to further extend and push the S&P 500 below 4000 again.
“The “Jackson Hole” failure at 4195-4219 (8/22 downside gap) suggests an August head and shoulders top with downside risk to the low 3900s,” Suttmeier warned the bank’s clients in a note on Friday.
The break of the neckline at c4130 is likely to accelerate losses for the benchmark U.S. stock market index as the measured target points towards a move in the low 3900s. More precisely, a drop to 3920 would mark the completion of the head and shoulders pattern.
“We are also watching potential supports at the 100- and 50-day MAs at 4073 and 3996, respectively, with tactical retracement levels at 4062 (38.2% of the June into August rally), 3981 (50%) and 3900 (61.8%),” Suttmeier further added.
As far as the Nasdaq 100 is concerned, Suttmeier sees the price action developing within a bearish trading cycle on a weekly chart. Next supports for the index in the low 12000s.
The strategist also sees struggles extending for the Communication Services sector, which is “vulnerable on new relative lows as a bear flag pattern points lower.”
“Technology remains vulnerable with a failure near its declining 40- week MA and a potential right shoulder of a head and shoulders top relative to the SPX,” Suttmeier concluded.
