Alright, we no longer have to hear about how many days the S&P 500 went without a 2% pullback. Mega-cap tech is undergoing a rerating, but it still may face some multiple adjustments. This can happen in two ways: either prices continue to slide, or earnings guidance increases at a healthy clip. Regardless, the “most hated bull rally” has finally taken a breather. The price action has been erratic, and volatility has increased meaningfully on a relative basis. At these levels, it’s make-or-break time, and based on the run since the October lows, we cannot ignore the emerging technical setup.

The S&P 500 has lost the 20-day SMA after testing it for three consecutive trading sessions. Support at the 50-day SMA, which is approximately 130 points lower, also failed in yesterday’s session, setting us up to test the 100-day SMA (around 5287 at the time of this writing). While the 100-day SMA is not widely discussed, it has been a key support level, bouncing off it during the last pullback in April. If it’s not already on your charts, you might want to add it in the near term.

The Commodity Channel Index (CCI), which measures the current price relative to a moving average traditionally set at 14 periods, has hinged higher for the first time in Thursday’s trading session, though it remains in bearish territory. This is only the third time in the last year that the CCI has entered such aggressive oversold territory. While the CCI cannot predict when an index or stock will reverse trend, it does provide a good indication of when momentum is slowing or accelerating.

Lastly, if you draw a trendline from the October lows to the April lows, we see a solid trendline that bulls do not want to see violated. This trendline may act as a magnet in the near term and could also serve as a strong support line for bulls to step in. A substantial break of this trendline will indicate that the market is pricing in turbulence for more than just a few weeks. Bears are not in control yet, and if bulls have enough conviction, we could see a short squeeze manifest with the right earnings environment.

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