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July 3, 2020, 3:05 a.m. EDT

Return of March panic is the biggest risk to the S&P 500 right now. Here’s the trigger

Critical information for the U.S. trading day

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By Barbara Kollmeyer, MarketWatch

AFP via Getty Images
The dark days of March 2020

Big highs and big lows. Our call of the day is all about the triggers for the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.06%  in weeks to come.

“As we look ahead, the biggest risk to markets is the return of panic, as we saw into the March 23 bottom where money was simply trying to get out. The only way panic at that magnitude returns is if the % positive number of cases continues to trend higher off the lows, which is very possible into the fall,” writes Adam Kobeissi, founder and editor in chief of the Kobeissi Letter , an investment newsletter.

Kobeissi said that percentage of U.S. cases is currently hovering at 6%, from a low of 4.5%, according to Johns Hopkins University. If that figure starts inching higher, he expects the S&P will start to pull back. Note, U.S. cases topped 50,000 for the first time on Wednesday.

Over the short-to-medium term, he said the path of least resistance for stocks appears to be higher, with the technical picture suggesting a move to 3,150, which marks the high from June 15 to June 23, and a break above that would send the index to 3,275.

But from there, the index could pull back to a low of around 3,000 that was seen this week, partly due to simmering COVID-19 concerns. “It is important to note that ‘higher lows’ have formed SIX times since March 23, and the 2965-3000 support range marks the last two ‘higher lows.’ A break below 2,965 opens for significant downside, and we would expect to see 2,730 within a few trading sessions,” Kobeissi said.

The chart

Technology continues to swing its weight, as this Goldman Sachs chart shows:

“At the peak of the tech bubble, information technology never generated more than 14% of the S&P 500’s earnings. The profit contribution from info tech increased over the past few years and the sector now accounts for 21% of S&P 500 net income,” says U.S. equity strategist David Kostin and a team in a note.

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Aug. 7, 2020 5:10p

Barbara Kollmeyer is an editor for MarketWatch in Madrid. Follow her on Twitter @bkollmeyer.

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