Finally Losing Momentum: Where Is the Support Level for U.S. Stocks as the Adjustment Begins?

After nearly three months of strong rebound, the momentum in the US stock market has clearly weakened, and the S&P 500 index is standing at a critical technical crossroads.

On Tuesday, the S&P 500 index fell 1.4%, closing at 7365.48 points, while the Nasdaq 100 index plunged 3.3%. The trigger was a large-scale sell-off in chip stocks, raising doubts about the sustainability of the AI-driven tech rally. The VIX fear index briefly broke above 20 during the session, a level often seen as a significant signal of rising market stress. Technical analysts are closely watching several key support levels to gauge the depth and boundaries of this correction.

According to Bloomberg, the near-term to medium-term support ranges currently marked by technical analysts are distributed in the area less than 1% to about 6% below Tuesday's closing price of the S&P 500 index, indicating the market may need to undergo some further downside before finding solid support.

Craig Johnson, Chief Market Technician at Piper Sandler, stated, "After this round of strong gains, the market is losing momentum. If the index cannot quickly break out to new highs, dip buyers will be disappointed, and the rally will be hard to sustain."

Near-term Support: 7340 and June Low at 7237

This pullback was not entirely without warning. Prior to Tuesday's sharp decline, the Nasdaq 100 had surged over 31% since March 30, driven by strong corporate earnings that sent chip and AI stocks soaring. The S&P 500 had risen more than 17% in the past three months, with market capitalization increasing by over $10 trillion.

Both technical and fundamental indicators show the rally has become extreme. Piper Sandler, where Craig Johnson works, has advised clients to reduce exposure to overvalued tech stocks and instead overweight value sectors such as financials and industrials. The strong rally in tech stocks has supported the overall market, but as tech gains stall, the market is increasingly reliant on sectors more sensitive to economic slowdown and declining consumer confidence, causing structural vulnerabilities to surface.

For short-term traders, the most closely watched near-term support levels are concentrated in two areas.

JC O'Hara, Chief Market Technician at Roth Capital Partners, pointed out that if the S&P 500 index continues to trade below 7400, then the area around 7340 will provide effective support—this position closely aligns with the index's 50-day moving average, which is only about 0.4% from Tuesday's closing price. "These technical levels overlap to give buyers a good entry point," O'Hara said.

Mark Newton, Head of Technical Strategy at Fundstrat Global Advisors, is focusing on 7237.85, which is the intraday low on June 9. At that time, the employment data released on June 5 reinforced expectations for a Fed rate hike this year, triggering a concentrated sell-off in tech stocks and a rotation into defensive sectors. Newton commented, "Tend to be bullish, and use this pullback as an opportunity to increase positions, with the June low as a key defense line."

Medium-term Defense: The Multi-faceted Significance of 7000 Points

If near-term supports are breached, 7000 points will become a critical strategic support for the bulls.

From a technical perspective, 7000 points holds multiple meanings: firstly, it's the region where the S&P 500 reached new highs in the first quarter this year, carrying historical price memory; secondly, for traders following the Fibonacci analysis framework, slightly below 7000 marks the 50% retracement of the gain from the March intraday low to the June high, which O'Hara describes as "the market’s natural reset level when faced with extraordinary selling pressure."

It is worth noting that even if the index drops to 7000, trend-following CTAs (Commodity Trading Advisors) will still maintain a net long position in US equities. UBS analysts Nicolas Le Roux and Maxwell Grinacoff pointed out that around 7,000 points, CTAs "may begin to shift from heavily long to lightly long, but still on the long side."

Newton added that 6900 points would form more long-term support, as it served as resistance for an extended period at the start of the year, but the S&P 500 still has about 400 points of buffer before reaching that level.

For the Nasdaq 100, technical analysts have also identified clear support levels. 29,300 is the first key area, which has attracted dip buying several times over the past month. Next is 28,930, the intraday low hit after the June 5 employment data was released. If both of these supports fail, O'Hara will focus on the area around 28,679—which is close to the Nasdaq 100’s 50-day moving average.

Breadth is the Key to Whether the Rally Can Be Sustained

Technical analysts generally emphasize that restoring market breadth is crucial to determining whether this correction is over and whether a new upward move can continue.

The core contradiction of the current market is that the nearly 20% rise in the S&P 500 from the March low was mainly driven by a few soaring tech stocks, rather than a broad-based market rally. Once the rally in these leading stocks stalls, the overall market lacks sufficient endogenous support.

"It feels like we’re walking on a cliff's edge," Craig Johnson said. "Are we heading towards a market bubble? About to break new highs? Or is the market topping out? No one can be sure." This high degree of uncertainty is precisely why technical analysis matters so much in today’s market.