Market Features: With Key Support Levels Gone, Technicians Grow Edgier By Justin Lahart Senior Writer 6/15/98 6:52 PM ET
Rock-solid bottoms at 1080 on the S&P 500 and 8800 on the Dow Jones Industrial Average. Like death and taxes, they seemed so sure to those who view the market in a technical light. But after bouncing off those levels so many times over the last two months, the market finally cracked the floor in today's late selloff. The move through these support levels has the chartists worried.
"It looks nasty right now," said Richard Dickson, technical analyst at Scott & Stringfellow. "It looks like they're going to take the Dow lower tomorrow. The question is: Do we go into some kind of waterfall?"
Worsening the outlook, the September contract on the S&P 500 closed the trading day in Chicago down 22.40 to 1084.80. Traders had cited 1087.50 to 1089.50 as a key level there -- one that the market has rebounded from four times in the last three weeks.
"The futures are getting crushed," said Peter Green, director of technical research at Gruntal. "I think we're going to go to 1050 rather quickly in the cash. We satisfied the 8650 objective on the Dow. Now I think we're going to go to 8450 as the next target."
Dickson points out that the day's selling reverses what has been the character of the market's recent dips -- heavy selling followed by a reversal. Most market participants thought that's what had occurred on Friday -- and that today stocks would continue moving higher. "You had that reversal day on Friday, and then today what happened?" asked Dickson. "That's it -- sorry, guys -- and now we're down at the lows of the day at the close. That's not a good thing. The sellers are clearly in control now."
Many market watchers contend that technical analysis is not a very efficient tool for predicting what will happen to the market -- except in hindsight, that is. Still, the wide acceptance of the support levels smashed in Monday's action has the market concerned. The support levels had taken on vast psychological importance, and that could turn the failure in the charts into a near self-fulfilling prophecy. Ironically, that could lead to the kind of cathartic selling that technicians and fundamentalists alike have hoped to see -- a drop with the big volume that has been missing since April. "We need volume," said Green. "Volume is miniscule here. In my opinion, we need a billion-share day to wash out the sellers."
Unless the market can reverse itself, according to Dickson, things could get rougher. "If the market is going to save itself, it's going to save itself in the next couple of days," he said.
For tomorrow morning, at least, things do not look good. The S&P 500 futures closed 5 points below fair value, suggesting a drop at the open, and with the Nikkei futures down 410 to 14530 -- well below the Nikkei's close of 14,825.2 -- another drop in Asia could be in the cards.