Wall Street Consensus Emerging? JPMorgan Just Drew a "Key Defense Line," Goldman Sachs Also Warns that 6725 Points is the S&P Bull-Bear Divide

As market sentiment grows increasingly cautious, Wall Street’s top investment banks are drawing a new “bull-bear dividing line” for investors. Goldman Sachs' latest report clearly points out that 6725 is a key technical turning point for the S&P 500 Index; once broken, it may signal the formal end of the months-long positive market trend.

According to a report released Sunday by Goldman Sachs derivatives strategist Brian Garrett, 6725 is “extremely important” for the S&P 500 Index; falling below this level will turn its trend negative for the second time since February this year. The last occurrence was intraday in October.

Warnings on U.S. stocks appear to be becoming Wall Street “consensus.” According to a Wallstreetcn article, J.P. Morgan stated that the U.S. stock market faces a “critical defense line.” If the S&P 500 sequentially breaks 6700, 6631, and 6525, it will confirm a downward trend. The small-cap Russell 2000 Index has already shown the “most worrying” breakdown pattern. If key supports are fully lost, the market correction may last until early 2026.

This wave of warnings comes as the market prepares for a crucial data week. Nvidia, the world’s most valuable company, will release earnings, and its market cap is expected to swing by as much as $300 billion. Additionally, the market will see the first U.S. government job report in two and a half months. These events will undoubtedly offer new guidance for market direction.

6725: Is systemic selling about to erupt?

The report emphasizes that the market’s technical structure is becoming increasingly fragile, with algorithm-driven Commodity Trading Advisor (CTA) funds possibly becoming the main force in the next wave of selling. Brian Garrett noted in the report, investors should “put S&P 500’s 6725 on your launch pad,” as this is the key trend reversal level.

Goldman’s analysis shows that short-term momentum thresholds for the Nasdaq 100 and Russell 2000 indices were breached last week. Their models indicate that, assuming a sideways market, CTA funds are expected to sell about 20% of their NDX and RTY holdings in the coming week.

More concerning is the next key level. The report says the mid-term momentum threshold for CTAs is 6442. If the market falls below this level, it will have to absorb over $3.2 billion in sell orders within a week, potentially sparking even more intense market turmoil.

On the 14th, J.P. Morgan also issued a research warning that support levels for several key U.S. indices remain under pressure. If these “defense lines” are breached, the market will be confirmed to enter a downward trend, which may last until early 2026.

Among them, the S&P 500 is testing its first support around 6700. If this level, the recent low of 6631, and the area low near 6525 are all broken, it will confirm a bear market reversal, with a downside target around 6150. Of all benchmark indices, the technical pattern of the Russell 2000 is “the most concerning”—having breached key technical support, confirming a bearish reversal and opening space for further declines.

Defensive rotation intensifies

Goldman’s report provides evidence from multiple dimensions that funds are steadily flowing out of growth sectors into defensive ones. The bank notes that defensive inflows persist, with the VIX fear index intraday above 23 last week for the fourth time since April.

Specifically, in the Technology, Media & Telecom (TMT) sector, short selling outpaced long buying, while in defensive sectors like healthcare and consumer staples, long buying exceeded short selling. Notably, despite this defensive shift, overall equity exposure did not decrease significantly.

The bank’s cash trading desk (One-delta) also confirmed this observation, reporting massive supply pressure in tech stocks—“Thursday afternoon marked the peak of panic”—while the healthcare sector attracted strong demand, with even long-term funds “chasing” momentum.

Tech hedging demand surges, spillover risks under scrutiny

Despite a Goldman sentiment survey showing that nearly 50% of respondents expect TMT to lead the market in the next 12 months, there is strong downside hedging demand for big tech stocks—echoing the observed selling pressure in TMT by the prime brokerage and cash trading desks. Data show that the implied volatility spread between the Nasdaq 100 and the S&P 500 is near its highest in a year.

A disturbing sign is that Nvidia’s recent volatility—absent any major catalyst—is even higher than the average Russell 2000 small-cap volatility. The report notes that Nvidia’s market cap (about $4.6 trillion) is some 2,500 times that of the average Russell 2000 constituent ($1.7 billion), with liquidity not comparable at all.

Apart from sector rotation and technology stock concerns, a sharp momentum factor pullback is also a key market risk. Last week, Goldman’s momentum index plunged 750 basis points in a single Thursday session, one of the worst days for the factor in a decade.

Goldman’s derivatives team is concerned about this and believes it may “spread into even more unstable conditions.” Yet, despite momentum’s poor performance and rising market anxiety, investor exposure to this factor remains “very high.” This means that if selling continues, it could trigger a broader round of deleveraging and asset repricing.

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