There are two levels investors should be watching to see what the stock market does next, BofA said.
If the S&P 500 drops below 6,200, it could indicate a more serious decline in store for the market.
Conversely, if the Dow rises above 45,000, that could be a sign of a bullish breakout, the bank wrote in a note.
For investors looking for direction in the stock market, keep an eye on two technical levels in major indexes.
Paul Ciana, a technical strategist at Bank of America, said he was watching two levels in the S&P 500 and Dow Jones Industrial Average to determine where they go next. Those levels could serve as important clues for investors, Ciana said in a note, who have seen stocks trade in a tight range since the explosive rally following the market’s trough in early April.
Speaking to CNBC on Thursday, Ciana added that he had two concerns about the market from a technical perspective:
Seasonal weakness. The last days of summer tend to be a historically weak time for stocks.
Momentum indicators. The market’s steep rally in recent weeks could be a sign stocks are about to turn in the other direction.
“So, the rally into almost 6,500 — slowdown, according to momentum and trending indicators,” Ciana added, referring to the benchmark index recently notching a fresh record as traders shrugged off concerns about tariffs.
Here are the two levels on Ciana’s radar:
If the S&P 500 drops below 6,200
6,201 is a technical resistance level for the S&P 500, Ciana said. The benchmark index has traded above the 6,200 level since early July.
“In round numbers, we’re in a range from 6,200-6,500. I think if we break through 6,200, which was a key low about six weeks ago or so, then we could be a deeper decline and a worse scenario,” he said.
The S&P 500 falling to that level would imply a 2% drop from the index’s closing price on Tuesday.
Bank of America said it didn’t see a “stop pattern,” or a bearish technical signal in the benchmark index yet. In the note, Ciana reiterated his price target of the S&P 500 reaching a record 6,625 later in the year.
If the Dow breaks past 45,000
45,000, meanwhile, is the resistance level the Dow has traded under recently. The index briefly edged above that level for the first time on July 22 before dropping in the following days.
The market rally needs more breadth to continue, Ciana told CNBC, adding that it was “really disappointing” the index has remained below the 45,000 level in recent weeks.
“A weekly close above 45,000-45,200 would be paramount in signaling the epic recovery from the April lows can continue with rotation into the large cap INDU components,” Ciana wrote in the note referring to the Dow’s ticker. “Without this, headwinds for the rally may persist as intraweek rallies by the INDU continue to roundtrip the psychosocial resistance at 45,000.”
Investors think the next agenda-setter for stocks could be when Fed Chair Jerome Powell speaks at Jackson Hole, which will offer markets some direction as to where monetary policy might go. Powell is set to speak at 10:00 am ET, with forecasters on Wall Street speculating on the possible direction of stocks.
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