The S&P 500 finds itself at a critical juncture, poised between two significant technical levels that will determine the course of the ongoing bull market.
Bank of America’s technical analyst, Stephen Suttmeier, emphasizes that the index faces a vital “upside follow-through” challenge to further propel the year-long market rally, with the 200-day moving average offering support and the 50-day moving average acting as resistance.
Suttmeier underscores that the region between 4,375 and 4,407 has presented a formidable tactical hurdle for the bulls after the S&P 500 defended the lower 4,200s as a crucial support level. Conversely, he identifies the range of 4,300 to 4,335 as pivotal tactical support for the market.
Recent developments have seen the S&P 500 approaching its resistance range, reaching highs of 4,383 and 4,393 on Monday and Tuesday, only to retreat and continue to trade at 4,333.
According to Suttmeier, a positive note has been the improved breadth in the market over the past few days, with 80% of NYSE stocks registering upswings on Monday and 70% on Tuesday.
Market breadth, which reflects the widespread participation of securities in a stock market rally, is a crucial measure to gauge the strength of a rally.
A rally driven by a broad spectrum of S&P 500 companies indicates a robust market rally beneath the surface instead of one that relies primarily on a few mega-cap stocks.
The bulls also find encouragement in historical year-end seasonality trends, particularly during December. Since 1928, the S&P 500 has posted positive returns in December 74% of the time, with an average monthly return of 1.3%.
These returns tend to be even more bullish in December during the third year of the presidential cycle. Suttmeier suggests that “monthly S&P 500 seasonality implies buying into weakness in September and October before a fourth-quarter and year-end rally.”
However, the bullish outlook is contingent on the S&P 500 avoiding a breakdown and firmly remaining above its short-term support at 4,300 and its longer-term support at 4,200. A failure to do so could potentially reverse the optimistic setup and alter the trajectory of the ongoing market rally.