The stock market is flirting with a dangerous technical level

Stocks are in a danger zone closely watched by technical analysts for signs of further weakness ahead.

The S&P 500 and the Nasdaq 100 have both been trading below theur 200-day moving average, an important technical indicator that helps identify the long-term direction of a trend.

When securities fall below this level, it sends a warning to traders that the prior uptrend in price could be on the verge of reversing course and establishing a downtrend.

The S&P 500 and Nasdaq 100 have been trading below their respective 200-day moving averages since early March, and perhaps more importantly, they both retested the level and failed to climb back above it.

That trading behavior tracks with a key principle of technical analysis, which is that an old support level becomes the new resistance at the start of a downtrend.

The recent trading behavior solidifies the idea that the 200-day moving average is now acting as a resistance level for stocks.

The recent sell-off could also mark the start of a new downtrend, which is defined as a series of lower highs and lower lows.

That’s not to say that the bull market is over. There have been plenty of head fakes for traders who are laser-focused on the 200-day moving average, including in March 2023 and November 2023, when the index briefly traded below the indicator but quickly recovered.

But the longer the index trades below the key level, the higher the likelihood that a new downtrend is in place.

Katie Stockton, a closely followed technical analyst on Wall Street, told clients in a recent note that she expects the pain in stocks to continue.

“Our intermediate-term indicators suggest the correction will resume mid- to late April,” Stockton said, adding that recent trading behavior in the Nasdaq suggests “a challenging Q2.”