Technicals Signal V-Shaped S&P 500 Bounce, Evercore’s Rich Ross Says

(Bloomberg) -- The jarring selloff that dragged U.S. stocks 7 percent off their September highs has left the market poised for a steady comeback as price patterns “now offer a compelling tactical setup for a textbook V-shaped reversal higher,” Evercore ISI’s top chartist predicts.

Technicals Signal V-Shaped S&P 500 Bounce, Evercore’s Rich Ross Says

“The 7 percent correction was about 5 percent bigger than I thought it would be and I did not get out ahead of the recent decline, but I am getting out ahead of the tactical reversal with conviction,” Rich Ross, the firm’s New York-based head of technical analysis, wrote in a research note.

S&P 500 futures, which fell 35.5 points to 2,745.5 Thursday, will finish today higher by 50-55 points and “retest 2,900 in short order,” Ross wrote. They had gained as much as 39.5 points in morning trading but were up only 7.5 at 12:06 p.m. in New York.

Technicals Signal V-Shaped S&P 500 Bounce, Evercore’s Rich Ross Says

Thursday’s plunge pushed the S&P 500 Index’s 14-day relative strength index to 18, well below the level of 30 that’s viewed as an indication the market is oversold. U.S. stocks have only been this oversold six times since 1990, and the recent levels were more extreme than during the depths of the 2008 financial crisis, Ross said.

Other indicators Ross highlighted that bode well for a smooth recovery in stocks include:

  • The market entering a seasonally strong period at the tail end of a 7 percent pullback, with extreme oversold readings, neutral positioning and the S&P and Russell 1000 Growth holding key long term support
  • Improving global markets:
    • Currencies are starting to firm.
    • Commodities including crude, copper and gold beginning to work.
    • Tencent rallying 8 percent off the 150-week moving average, which has never been broken.

The S&P 500 rose as much as 1.7 percent today, putting it on track for a weekly decline still exceeding 4 percent.

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