Trading Nation

The S&P 500 just did something eerily similar to market tops in 2000 and 2007, warns chart analyst

Key levels to watch as the market sell-off rages on

Wall Street was awash in a sea of red for a second session on Thursday.

The plummeted nearly 7 percent from its late September record, shedding more than 5 percent in just two days and sending nearly one-third of its components into a bear market.

Its two-day plunge had it crashing through several key technical levels, according to Craig Johnson, chief market technician at Piper Jaffray.

"We've broken back below these January lows. That's a little bit more of an ominous signal from the chart perspective," said Johnson on CNBC's "Trading Nation" on Thursday. "We saw similar set-ups to that in 2000 and also in 2007," two of the largest and most recent prolonged sell-offs.

By late Thursday, the S&P 500 was trading at levels not seen since early January. It also broke through its 50-day and 200-day moving averages this week, a sign of rapid price declines relative to longer-term trends.

With those levels now breached, Johnson said the next support line sits at around 2,745.

"I think we're going to touch that and maybe even undercut that a little bit and probably find some support around 2,700," said Johnson.

The S&P 500 is just 0.6 percent from 2,745, a level not seen since July. Another 1 percent drop would take it down to 2,700. It broke above that level in June.

There's no shortage of catalysts that could take the S&P 500 down to those levels, said Johnson.

"When you start looking around the world and you start looking at the big breakdown in the DAX, and the Shanghai composite and what's going on in the bond market and financials sectors not participating in this advance, there's more problems out there that we need to pay attention to," said Johnson. "I think we're going to see a deeper sell-off."

Stacey Gilbert, market strategist at Susquehanna, shared her strategy to protect against any further stock market damage with "Trading Nation" on Thursday. She recommends owning a protective out-of-the-money put and selling an upside call against that to finance the protection.

"It's going to give me the downside exposure that I want, ideally the rest of my portfolio has some outperformance that that short upside call that I have isn't going to be as significant to the rest of my portfolio," Gilbert said.