S&P 500 skid for the sixth straight day, but here's what to expect

After a rebound of 1.7%, the S&P 500 logged its sixth straight session of declines, its longest losing streak since February 2020.

The market's irrational contours have made airing of opinions on the direction a dangerous business. Some of the biggest rallies in history have taken place in the middle of prolonged downturns, and while the setup for a near-term rebound is still in place, it didn't happen Tuesday. Chart watchers are looking down to see where the next bounce could come, instead of looking up.

Jason Goepfert, Chief Research Officer at Sundial Capital Research, said it was a hazardous environment for risk-averse investors, especially those with shorter time frames.

John Lynch, chief investment strategist for Comerica Wealth Management, said if the 3,640 level for the S&P 500 fails to hold, the 3,500 range will act as the next level of technical support. He said that this represents a 50% retracement from the index's March 2020 lows and January 2022 high.

The situation is also precarious, as the bedrock of corporate profit growth begins to deteriorate, Lynch said. The S&P closed a hairline away from that threshold Tuesday at 3647.29.

Corporate profits, especially for the third quarter, have been criticized for being too high. The market has seen more downgrades than upgrades for about four months in a row.

The consensus view is that earnings estimates have to come down, said Stephanie Lang, chief investment officer at Homrich Berg. The earnings are coming down, and stocks will follow because earnings need to go lower and the multiples need to go lower. The tech-heavy Nasdaq 100 is down just over 32% from its all-time high. The index will need to rally 48% to return to that peak, according to Bespoke Investment Group. Nearly all of the stocks in the index traded below their 10 day moving average, with tech stocks under pressure in the latest trading sessions.

Since the NDX was launched in 1985, there have only been 20 other days with readings this low across all three breadth metrics, the 10, 50 and 200 day moving averages, according to Goepfert. Goepfert said that every instance sparked the beginning of a significant bottom.

The S&P 500 index has slipped into oversold territory. Craig Johnson, chief market technician at Piper Sandler, sees that as the market is primed for a bounce back. The RSI reading was near 27 on Tuesday, the lowest since January.

Not all chart watchers are so sanguine.

Jack Janasiewicz, portfolio manager for Natixis Investment Managers Solutions, says his firm still has a slight underweight on US equities. He says that if the S&P 500 falls to around 3,500, that could be a good place to start buying. It would be more appealing to have a drop to 3,330.

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