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S&P 500 faces more weakness as pressure builds, chart analyst warns

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The S&P 500 could see more pain.

So says Mark Newton, president and founder of Newton Advisors, after examining the S&P's technical charts. The major averages ended trading lower Tuesday as crude prices continued their unprecedented plunge and uncertainty prevailed in the broad market.

With the S&P ending the day down more than 3% at 2,736.56, it already broke below last week's lows and erased "the entire uptrend from late March," Newton told CNBC's "Trading Nation" on Tuesday.

"It does appear like this rally that started on March 23 is really starting to lose steam," Newton said. "My thinking is, over the next few days, we can start to pull back. I'm not certain that we have to necessarily retest the lows right away, but a lot of this does have to do with Treasury yields breaking down, very similar to what happened in mid-February and also in mid-January, which coincided with stocks also starting to turn lower."

The "violent moves" in crude oil have also dinged the index, Newton said — and that's not all he sees adding to the weakness.

"You want to keep a close eye on financials," he said. "Last week did see a real drop-off in breadth. The momentum, a lot of that was financials-related as yields were pulling back. So, it's going to be important to see some stabilization."

Newton added that investors should also keep an eye on technology, which ended Tuesday as the S&P's lowest-performing sector.

"If you have tech and financials both falling, that's almost 40% of the market right there," he said. "Near term, the real key area is going to be 2,637, which was the first high off that rebound in late March. If we can hold there, then, arguably, potentially, we can stabilize in the next three to five trading days. My thinking is sentiment has already been very very subdued, if anything, that a turn-down is going to cause sentiment to get bearish that much more quickly. So, it might actually be a chance to really look at buying dips in the near future. But today, specifically, is a negative and I do expect a bit more weakness based on what's happening today."

S&P 500 futures were at $2,764 on Wednesday, up 1% and U.S. crude futures were up 8%.   

Quint Tatro, president and founder of Joule Financial, warned in the same interview that investors should be careful when looking for places to hide out.

"It's very, very concerning when investors look to go hiding in other investments because I think, ultimately, we're in a bear market, and this is going to take all sectors and indices lower," Tatro said. "The difficulty we're having here is from a fundamental perspective. The market is still not cheap. It's not of value. In fact, depending on how you calculate what earnings are going to do this year, the market's more expensive than it was to begin 2020, which was a much higher price."

That doesn't bode particularly well for stocks with earnings and fundamentals still coming in weak, Tatro said.

"We are factoring in anywhere from a 15 to 20% drop in overall earnings per share for the year, which, if you look at a multiple of 20, puts us back at 2,231" on the S&P, he said. "If you take a historic multiple of 15, that takes us down to 1,673 on the S&P. So, I think we've got a long way to go."



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