The stock market is facing one of the most critical technical tests of this year's sell-off, just as worries build over the Trump administration's trade dealings with China and the investigations that swirl around the White House.
The plummeted below its 200-day moving average Thursday morning, at just below 2,615, a key test area that it has been successfully challenged before. By afternoon, it was back above that level and a successful test could mean a market rally, but a failure could mean steeper declines ahead.
The 200-day sounds obscure, but it is important because it is widely watched, not just by technical analysts, but by many traders who may use it as a buy or sell signal. It is basically an indicator for price momentum and is simply derived from the average of the last 200 closing levels.
Since the February sell-off, the S&P has successfully tested this level at two key points, and now those levels are important places for it to hold. The fell more than 1.5 percent in morning trading before recovering much of its losses and rising back above the 200-day moving average. Technicians say if the 200-day test fails, the next big spots to watch are the April low of 2,553 and the February low of 2,532.
"It's in the process of challenging the uptrend that's been in place since the 2016 lows. So it's pretty fragile here," said Robert Sluymer, technical strategist with Fundstrat. "Potentially, technical traders are going to reduce exposure and use these stop-loss levels as fairly important, and they could be important in the next day, or two days."
Sluymer said another support area to watch is 2,585, a bottoming zone in April.
This test comes as investor expectations are low that Treasury Secretary Steven Mnuchin and the rest of the Trump team in China this week will be able to do much to turn the tide in what appears to be an escalating trade war, with tariffs being tossed out by both sides.
Also, the latest comments from Trump legal adviser Rudy Giuliani about the hush money paid to porn star Stormy Daniels adds to the cloud already hanging over the investigation into President Donald Trump's campaign dealings with Russia.
Giuliani said Trump paid back lawyer Michael Cohen for the $130,000 he gave Daniels just before the election, and that it did not involve campaign funds. He also said Trump fired former FBI Director James Comey because he would not say Trump was not the target of an investigation.
But it added to the unending stream of headlines on the investigation, including the leaked questions reported earlier this week that special counsel Robert Mueller was said to be planning to ask Trump.
Greg Valliere, global market strategist at Horizon Investments, said in a note, "Talk of subpoenas, more indictments and a new White House policy of 'taking off the gloves' against Robert Mueller has prompted us to conclude that chances of House impeachment in early 2019 — perhaps 35 percent a few months ago — are now at least 50 percent."
He said chances of a Senate conviction edged up to 25 percent from zero a few months ago. "We still don't expect Trump to be removed from office, but this will be a rocky ride," he wrote.
Jeff Saut, Raymond James' chief investment strategist, says he's sticking by his call for now that the stock market bottomed Feb. 9 when the S&P 500 fell to 2,532.
But he said the market was behaving Thursday as it always does when it has a fear about the White House. He noted the old Wall Street saying: "When the president is in trouble, the stock market is in trouble."
"I think it's more about the president than it is about trade. I've lived in the D.C. beltway, and I've never seen it turned on its head like it is now," Saut said. "I think the American public is getting sick and tired of it."
Saut said the market has support from the strength of earnings and the economy.
"The S&P is supposed to earn $158 and change this year and $170 next year. If those numbers are right, there's not a lot of downside in stocks," he said.
Trade with China should get worked out, and Saut expects both sides to back down.
As stocks sold off Thursday, investors dove into the safety of bonds. Treasury yields edged lower, even though the Fed on Wednesday reiterated its intentions to move forward with interest rate hikes. The 10-year Treasury yield fell to 2.93 percent, off from about 2.97 percent Wednesday.
The Fed's clear intention to continue hiking interest rates also was a factor in the stock market, which has been nervous the Fed may pick up the pace of hikes as the economy gets softer.
Kate Stockton, founder of Fairlead Strategies, said the 200-day moving average is important but it acts as more of a cushion for the market, and she would have to see the S&P fall far below it and stay there for awhile to be concerned.
"To me a breach of the 200-day moving average, while it's something to make note of and keep an eye on, it's not necessarily a breakdown," she said.
"More importantly, we have our first oversold reading in the S&P futures since the very beginning of April. With that in mind, it gives the 200-day moving average a better chance of holding up for support," she said.
Scott Redler, partner with T3Live.com, said Thursday's close will be important for the market. "Although we are lower, there is no fear or acceleration. That can happen the longer we stay below [the 200-day]," he wrote in a note.