The financial crisis of major Chinese property developer Evergrande has triggered a sharp turning in broader stock market sentiment as seen by the S&P 500 falling below its 50 day moving average.
The tenuous situation of Evergrande, which includes potential missed debt repayments, gained steam over the weekend and caused investors to awaken to a global risk rout on Monday. In turn, the S&P 500 fell farther below the 50-day moving average midway through the Monday's session See chart below Miller Tabak strategist Matt Maley points out that the S&P 500 fell below the 50-day moving average on one trading day in March of this year. It quickly bounced back as investors embraced the re-acceleration of corporate profits from the depths of COVID 19 pandemic and ongoing easy policies from the Federal Reserve.
What are some fresh concerns facing investors about the current credit ceiling, Evergrande, and the direction of Fed policy meeting on tap this week a test of the 100 - day moving average that is less than 1% away from the debt ceiling?
If that crucial technical level is broken for the S&P 500, strategists argue it could be look out below for stocks in near term.
Says Maley, The moving average 100 - DMA day did provide nice support for the S&P 500 in both September and October of last year. Consequently, it might be able to slow any slide before things start getting ugly. Having said this, a break of that 100 - DMA would signal the break-down in the stock market and confirm that a test of the 200 - DMA down at 4,100 is all but certain According to Yahoo Finance Plus data, the 200-day average is only 5.8% from being tested.
Other traders are taking a more optimistic position on the market even as they expend their first true test of volatility in some time. The bulls appear to agree that while the headline pressure is possible due to the litany of short-term risks, the fundamentals are such that stocks can rally into year-end.
However, I think at the end of this year, this will be just a blip along the way, said Baird strategist Michael Antonelli on Yahoo Finance Live. If you are going to be able to make the case why this impacts Visa, Google and Facebook earnings in a meaningful way that we have some 15% to 20% draw-down correction Brian Sozzi is an editor at - large and anchor at Yahoo Finance. Follow Sozzi on Twitter and LinkedIn.