GO
Loading...

Beware the market's 'limbo line': BofA strategist

Bank of America's top equity technical strategist warns that the 1,700 level is hugely important for the S&P 500. And now that the market closed below that round number, the index could be due for a drop down to 1,650.

"It is an important level," Stephen Suttmeier told CNBC on Tuesday's "Futures Now." The dip below 1,700 "calls into question the breakout that we just saw in the S&P 500. So that 'limbo line' is very important."

(Read more: Here's why I'm shorting the market today: Pro)

Indeed, the S&P was trading just above 1,700 a week ago before the Federal Reserve's announcement that it would not taper the pace of asset purchases quickly sent the market up to 1,729, an all-time high. But over the next four days of trading, the market traded all the way down to 1,695.


Ale Ventura | PhotoAlto | Getty Images

Suttmeier points to other warning signs as well. "We are seeing some near-term leadership lost from the financials, and that typically could provide an overhang on the equity market," the chief equity technical strategist at Bank of America Merrill Lynch Global Research said.

All in all, Suttmeier sees the market dipping a bit lower. Speaking before Tuesday's close, he said: "If 1,700 did give way here, it probably would suggest that the S&P would pull back toward 1,674, 1,650."

The S&P, which had already dipped below 1,700, closed the day at 1,697. To Suttmeier's work, this sets the market up for another 3 percent drop.

(Read more: 'Uptrend is intact' for S&P 500: Yamada)

Still, not every technician finds the 1,700 level as important as Suttmeier does.

"No documentation exists to support the oft-argued importance of the round-number psychology in the market," Oppenheimer Chief Market Technician Carter Worth wrote to CNBC.com. "There is no importance to the 1700 level vs. 1725, say… or 1675."

—By CNBC's Alex Rosenberg. Follow him on Twitter: @C NBCAlex.

Watch "Futures Now" Tuesdays & Thursdays 1 p.m. ET exclusively on FuturesNow.CNBC.com!

Like us on Facebook! Facebook.com/CNBCFuturesNow.

Follow us on Twitter! @CNBCFuturesNow.

Contact Futures Now

  • Showtimes

    Watch Futures Now Tuesdays & Thursdays 1p ET exclusively on cnbc.com!

Sponsor Links

  • CME Group brings buyers and sellers together through its CME Globex electronic trading platform and trading facilities in New York and Chicago.

  • Take your trading to the next level with a platform that lets you trade stocks, options, futures and forex all in one place with no platform or data with no trade minimums. Open an account with TD Ameritrade and get up to $600 cash.