Despite ongoing Middle East hostilities showing no signs of easing, Wall Street traders are scrutinizing technical charts to gauge how much further the benchmark S&P 500 index could decline. Technical analysts note that amid current high market volatility, early signs of bearish momentum are emerging. On Tuesday, the S&P 500 fell 0.2%, dropping further below both its 50-day and 100-day moving averages. Breaching these key indicators reflects clear bearish sentiment: the 50-day moving average reflects short-term trends, while the 100-day moving average is viewed as a more intermediate-term gauge.
Investors are now closely watching the next milestone—the S&P 500’s 200-day moving average, hovering near 6,591. A drop to this level would represent a decline of approximately 5% from Tuesday’s intraday high. Meanwhile, Michael Wilson, Chief Equity Strategist at Morgan Stanley, suggests that the current deterioration in Middle East geopolitical conditions impacts U.S. stocks similarly to last year’s tariff tensions under the Trump administration, likely causing only short-term pullbacks and mid-term volatility. Wilson expects the U.S. stock market to remain volatile with a downward bias over the next month but emphasizes that the outlook will become clearer in six months, with bull market sentiment potentially returning in full force.
As conflict between the U.S., Israel, and Iran persists, technical analysts on Wall Street are intensifying their search for a market bottom. David Wagner, Head of Equity Business and Portfolio Manager at Aptus Capital Advisors, commented on the market setup: "This often acts like an 'engine warning light' for investors. It signals that current momentum is weaker than historical averages, and the narrative is shifting from bullish optimism to caution." While fundamentals such as valuations provide a solid foundation for long-term bullish prospects, technical charts gain importance during periods of market stress. With recent sharp volatility causing stocks to react to every geopolitical headline, technical analysis may offer traders a clearer roadmap for identifying key support levels or major inflection points.
From a technical perspective, the next critical level to watch is the S&P 500’s 200-day moving average. A breach of this level, which would mark the first drop below the 200-day average since last May, could signal a deeper shift in trend direction, according to Ari Wald, Head of Technical Analysis at Oppenheimer & Co. Wald notes that as long as the 200-day support holds, the index's fall below the 50-day average may represent a short-term correction within a longer-term uptrend—potentially creating buying opportunities. However, he warns that a break below the 200-day average would indicate a more significant trend change.
Although the S&P 500 remains within 3% of its record high set in January, underlying market conditions have been turbulent. Before military strikes against Iran, U.S. and global equities had largely traded sideways this year. Earlier this week, the CBOE Volatility Index (VIX) surged above 35, reaching its highest level since the tariff-related tensions in spring 2025. Matt Maley, Chief Market Strategist at Miller Tabak + Co., observes that the S&P 500’s 100-day moving average—previously a key support level since May 2025—has now turned into a resistance level. The index closed at 6,781.48 on Tuesday, failing to reclaim this level. Maley identifies the 6,550–6,600 range as a critical zone; a breakdown below it would establish a lower low, signaling a potential trend reversal.
Morgan Stanley remains bullish on U.S. equities, maintaining a year-end target of 7,800 for the S&P 500. Wilson’s optimistic outlook is based on a medium-term perspective rather than short-term speculation. In the near term, he views the market as being in a "bottoming phase" amplified by technical factors and triggered by Iran-related tensions. Over the intermediate term, Morgan Stanley characterizes the current environment as a "rolling correction" that has persisted for months—not the end of the bull market.
While the S&P 500 has broken below its 50-day and 100-day averages, with technical traders eyeing the 200-day average as the next key support, Wilson emphasizes that the current correction began last fall amid liquidity tightening—not in February. The Middle East conflict has simply made latent pressures more visible and measurable. Wilson describes the recent escalation as a "sentiment amplifier," not the root cause. Even before the conflict, markets were digesting concerns such as AI-driven labor displacement and private credit default risks. Rising oil prices and geopolitical tensions have now spread pressure from overvalued, crowded sectors to broader market indices.
A key insight from Wilson’s analysis is that a true market correction typically nears its end only when high-quality stocks and indices begin to underperform. Therefore, he advises against rushing to buy the dip in the short term, expecting the S&P 500 to potentially test the 6,300 level by early April. In his view, the market is in the latter stages of a tactical de-risking phase rather than at the start of a sharp V-shaped recovery.
Based on a six-month fundamental recovery outlook, Wilson’s base-case scenario suggests that the oil price shock resembles a risk premium linked to logistics disruptions in the Strait of Hormuz—not a permanent supply collapse. If the situation stabilizes in the coming months, as seen in the early phases of the Russia-Ukraine conflict, U.S. stocks may return to a earnings-driven bull market trajectory, decoupling from geopolitical risk pricing. Factors supporting his medium-term optimism include broadening profit growth trends, U.S. energy independence relative to Asia and Europe, and fiscal incentives such as capital expenditure tax benefits and household tax cuts that could largely offset the impact of higher oil prices.