S&P 500's Technical Levels in Focus Again, But Now to the Upside

(Bloomberg) -- Tuesday’s rally in U.S. stocks had some rather straightforward catalysts: earnings optimism grew at the same time geopolitical angst eased.

For technical analysts, however, it’s more complicated. The S&P 500 Index, having vanquished its average price for the past 200 days, pushed through its 50-day average at the open and took aim at the higher 100-day mark. It’s perched above that level heading into the close, and if it lands on the upside it could go even higher, the chart-watchers say.

Fundstrat technical analyst Rob Sluymer says the area is a “near-term trading challenge,” especially in the resistance band between the two levels, but he sees additional gains coming because of the breadth of the rally and the outperformance of small-cap stocks.

“Technical evidence continues to build supporting the case that an intermediate-term low is developing for U.S. equity markets,” Sluymer wrote in a note on Tuesday.

DMAs aren’t the only technical indicators chartists are eying. According to Evercore ISI’s head of technical analysis, Richard Ross, S&P 500 futures emerging from a three-week, three-month double bottom sets the stage for short-term upside on the index at 2,800. It’s currently trading at around 2,700.

JPMorgan Securities technical analyst Jason Hunter is more optimistic, predicting that stocks will climb to fresh highs as the recovery gathers momentum.

“The technical setup continues to lean in favor of an eventual break to new rally highs in the summer,” he wrote in a note Monday.

Watching for a Breakout

UBS Group AG chief technical analyst Peter Lee is looking for a breakout when the index crosses 2,746, the top of a four-month symmetrical triangle. This hints at a retest of the March highs around 2,802 and the January record near 2,872, he wrote in a note Tuesday.

One note of caution, however, is that the latest advance has been building on light volume. Indeed, trading in S&P 500 companies trailed the 30-day average by 10 percent at this time of the day as of 3:15 p.m. in New York and exchange volume fell to the lowest level of the year Monday.

“As bullish as the price action has been over the past two weeks the lack of volume during this rally has been an ongoing concern,” Russ Visch, a technical analyst at BMO Nesbitt Burns Inc. in Toronto, wrote in a note Tuesday. “Rallies on low/contracting volume are a sign that demand is drying up.”

Regardless, investors won’t be in the clear until the S&P 500 reclaims 2,800, according to Stephen Suttmeier, technical analyst at Bank of America Merrill Lynch.

“A move above 2,800 may be needed to confirm the end of the corrective phase,” Suttmeier wrote in a note Tuesday.

To contact the reporters on this story: Joanna Ossinger in New York at jossinger@bloomberg.net, Lu Wang in New York at lwang8@bloomberg.net.

To contact the editors responsible for this story: Tracy Alloway at talloway@bloomberg.net, Eric J. Weiner, Brendan Walsh

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