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This key level could signal more selling: Grasso

Market broken or bruised?

After a three-day selloff in stocks, there's one key level to watch over the next few days, Steve Grasso, institutional sales director at Stuart Frankel & Co., said Tuesday.

The 200-day moving average, which the S&P 500 last broke on the downside in November 2012, would be a critical line in the sand, he said. That level is 1,905.

On CNBC's "Halftime Report," Grasso said that he also was looking to Monday's low of 1,874 in the near term.

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Traders on the floor of the New York Stock Exchange.
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"That's the new eyeball level for the markets to be interested in," he said. "It's too early to tell whether we're broken or bruised."

Stocks could signal an extended downward trajectory, depending on how they close over the next few days.

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"Right now the market is too skittish," Grasso said. "If we keep closing below that 1,905 level, we go dramatically lower, and I'm looking at 1,800."

Finding the fear trade

Grasso tied the exit from stocks to Ebola. "What is the exodus at the end of the day? It was the Ebola headlines."

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Earlier, he also noted that the last time the S&P 500 broke below the 200-day moving average, it remained there "about a week or so."

"You need to close below this for a couple of days," Grasso said.