S&P 500 gives traders some hope for a bounce as it manages to close above key chart level

Published Mon, Jul 19 20215:22 PM EDTUpdated Mon, Jul 19 20215:51 PM EDT

Patti Domm @in/patti-domm-9224884/@pattidomm

The S & P 500 dipped below a key technical level during Monday's rout but then closed above it, giving some hope to investors looking for a turnaround. The S & P 500 fell below 4,240, its 50-day moving average, as stocks sold off hard during the session. It then rose back above it late in the trading day and closed at 4,258. That was the first time since June 21 that the S & P 500 was below the 50-day, a technical level which is literally the closing average of the last 50 sessions. "I think right now you have a lot of people expecting a turnaround Tuesday," Instinet executive director Frank Cappelleri said. The 50-day can act as a level of support. Cappelleri said the 50-day has acted as a magnet that brought in buyers ever since the market bottomed in March 2020. "It's been a support line traders have had their eye on any time there's been a dip this year. If it aggressively breaks that, I think it would cause concern that selling momentum could continue." Cappelleri added the test of the 50-day moving average will likely be a several day event. "I think it would be a little presumptuous to think this was it, one day touching it and back to new highs," he said. "There's a lot more we have to go through before we get confirmation." T3Live.com partner Scott Redler said he is also watching the 50-day, and it will take several days of trading around it to see how it will resolve. "The longer we hang around the 50-day without bouncing off it with any power, the higher the probability we could be in a longer corrective phase." Strategists say an encouraging sign was that some growth names like the the iShares Biotechnology ETF and the ARK Innovation ETF were able to close higher Monday. Fairlead Strategies founder Katie Stockton said she did not see breakdowns in the market that would suggest a prolonged sell-off but she did sense some panic among investors. She said it's possible the market could be higher by the end of the week. But she is watching the Russell 2000's performance. The small cap index closed down 1.5% at 2,130 but is 9.7% from its high. "If the Russell were to break down we would be more cautious on the S & P 500," she said. She is watching the level between 2,066 and 2,081 as an area of trouble for the Russell 2000. "What we don't want to see is a couple of decisive closes below that." Cappelleri is also watching the Russell. "Some of the small cap names have had trouble over the last few weeks. Many of them got hit hard. The percent of stocks in the Russell 2000 above their 20 day moving average was around 16% before the market even opened. So it's even lower now," he said. "We haven't seen anything below 10% since before the March 2020 crash. This tells you how depressed the names got."

Traders work on the floor of the New York Stock Exchange.

Brendan McDermid | Reuters

The S&P 500 dipped below a key technical level during Monday's rout but then closed above it, giving some hope to investors looking for a turnaround.