The U.S. stock market could be due for another major pullback after wobbling in recent weeks, according to analysts who study charts. The S & P 500 fell 2.1% last week for its second straight losing week. The slide comes after a rebound in the back half of March on the heels of the first Fed rate hike, which some Wall Street strategists described as a relief rally. Now, it appears that the relief may have run out. In a note to clients on Monday, Oppenheimer analyst Ari Wald pointed out that the S & P 500 has failed to close a downside gap near 4,475, and that the Nasdaq 100 has seen a similar trading pattern. A downside gap occurs when an index opens sharply lower than its previous close and then fails to rise to "fill in" the gap, and on a chart it can look like a ceiling for trading. This gap also happens to be near the S & P 500's 200-day moving average, which the index slipped below earlier this month. "While early-April selling hasn't broadened to the downside in an exceptional manner, we side cautiously below these gaps. Overall, we think it would be reasonable for equities to waver before capitulating lower this summer," Wald wrote. The technical patterns are also concerning if you zoom in to intraday moves. BTIG's Jonathan Krinsky said in a note to clients on Sunday that the S & P 500 has seen several "negative outside days" on candlestick charts in recent weeks, which means that stocks are falling and taking out the intraday lows from prior sessions. The tech-heavy Nasdaq Composite , which has underperformed this year, could also be poised for a big step back. Nobody made money buying 'a chart that looks like this' John Roque of 22V Research said in a note to clients on Sunday that, in addition to downside gaps, the Nasdaq's 200-day moving average is now falling, a bearish signal, and that the index could slide to to 11,421 or even 10,000. The Nasdaq closed at 13,351.08 on Friday, so falling to Roque's targets would represent declines of 16.9% and 33.5%, respectfully. "Without equivocation we'd say that almost nobody — ever — in the history of markets has made money going long a chart that looks like this," Roque wrote. One potential reason that the market's late-March rally did not last is the ratio of advancing to declining stocks, Wald wrote. The advance-decline line for all New York Stock Exchange common stocks failed to hit its January highs, "indicating heightened risk that the market is still in the process of topping," Wald said. The trading patterns of individual sectors do not provide much reassurance that stocks can hang in their current range. Krinsky wrote that the next move for both the outperforming and underperforming industries could be to the downside. "The momentum paradox is that many areas showing the best relative strength (Utilities, Pharma, Staples, Fertilizer/Ag, etc.) are so extended in absolute terms that it's difficult to defend them tactically. Conversely, the weaker/ low-momentum areas such as Banks, Homebuilders, Semis, Software, Discretionary, and Communication Services can't seem to bounce and have now worked off oversold conditions which leaves them vulnerable to further weakness," Krinsky wrote. That broad weakness could result in a significant pullback for the index. "If we can't defend the strong trends, and the weak trends are looking like they are resolving lower, it increases the risk that the broad-based indices are setting up for a deeper pullback, likely coinciding with the sub-4,000 SPX we have been looking for over the last couple of months," Krinsky added. — CNBC's Michael Bloom and John Melloy contributed to this report.
Traders on the floor of the NYSE, April 14, 2022.
The U.S. stock market could be due for another major pullback after wobbling in recent weeks, according to analysts who study charts.