S&P 500's key technical defenses are under threat! Amidst rampant selling, the bottom-fishing army is closely watching the next support level

The spiral intensification of the sell-off in tech stocks is pushing the S&P 500 index toward a critical trendline cliff. Traders are carefully studying charts to determine how much further this market “barometer” might fall.

On Thursday, amid concerns that the artificial intelligence wave is spreading to broader markets, the index closed down 1.2%, at 6798.40 points. According to market technical analysts, it briefly fell below the 100-day moving average (around 6797 points), which has served as support since May 2025.

“The S&P 500 rebounded strongly from that line in November last year,” said Matt Maley, Chief Market Strategist at Miller Tabak & Co. “Therefore, if this time it effectively breaks below that line, it will signal some warning signs.” He added that for chart observers, a sustained break below the 100-day moving average would mark a shift in market trend — after bottoming out from a sell-off triggered by tariffs in April 2025, the market had been steadily climbing.

“Turbulent Inferno” and Options Fuel the Fire

This round of sell-off, which has pulled the S&P 500 down about 2.6% from recent highs, showed little sign of easing on Thursday. Weak employment data worsened the decline, while concerns over how the latest AI developments will impact software company valuations were the main drivers of this drop. Alphabet (GOOGL.US) also joined the decline after reporting earnings.

Options research firm SpotGamma pointed out that the decline in the S&P 500 is being exacerbated by options market makers being forced to adjust hedges and sell into the falling market. This dynamic, known as the “market maker negative Gamma effect,” has already begun to manifest during recent sell-offs.

Founder Brent Kachuba wrote in a client report, “If we remain below 6900 points, we believe market clearing remains a possible outcome, with 6675 points as the main downside support level.”

Piper Sandler’s head of options, Daniel Kirschenbaum, said the negative Gamma effect makes the 6900-point area a “turbulent inferno” for traders in the coming weeks. He added, “This is the first time in about a week during this sell-off that we’ve seen genuine hedge demand buying.”

Next Line of Defense

According to Ali Wald, Chief Technical Analyst at Oppenheimer, the next key level to watch is 6520 points — which is both the index’s low in November last year and roughly coincides with its 200-day moving average.

“As long as we stay above this critical support level, the upward trend should remain intact,” he said via email. “Once software stocks stabilize, the market should follow suit. Currently, this remains a vulnerable area.”

Wald believes that for the heavily battered iShares Software ETF, key support is in the $74 to $77 range. This marks a significant retracement of the ETF’s gains from 2022 to 2025 and aligns with lows in 2024 and 2025.

Thomas Thornton, founder of Hedge Fund Telemetry, said he is closely watching the 6600 level on the S&P 500, which roughly corresponds to the lows touched in October and November last year.

“If that level gives way, I see 5600 points or even 4800 points as possible lows,” he said. “Passive fund investors have been buying on dips, and they might do so again this time. But if the decline deepens and lasts longer, they might hit the ‘sell’ red button.”