As the S&P 500 rallies from its depths in early April, technical analysts see reason for both caution and optimism.
The market benchmark was up 0.9% to about 5900 in Tuesday afternoon trading. The Nasdaq Composite was up 1.7%. The Dow was down 140 points, or 0.3%, but would be trading higher if not for a steep decline in UnitedHealth.
Rich Ross, Evercore ISI’s head of technical analysis, called the S&P 500’s sharp recovery the start of a new bull market run that targets 6150 as the index marches back toward its February record levels. He sees measured upside to 7000.
“The dramatic de-escalation of the Trade Tirade simultaneously reduces the odds of both recession AND stagflation,” writes Ross, who argues sentiment is still offsides.
Ross argues the index is not overbought, and sentiment and positioning are lagging price and policy shifts.
On the flip side, BTIG Chief Market Technician Jonathan Krinsky made the case that patience is warranted broadly.
Krinsky points out that when the S&P 500 has gapped up 2.5% or more while opening above its 200-day moving average, it has filled that 2.5% gap within the next six trading sessions each time. That would imply a 3.5% move lower.
“Clearly much of the ‘left tail’ risk for markets has been taken off the table in the nearterm, and many signs point to a more constructive environment over coming months,” Krinsky writes. “With that said, even if you think we are breaking to new highs, we think patience is warranted and better entry points await in the days/weeks ahead.”
He notes the index is now 6.5% above its 20-day moving average, the widest spread since June 2020.
“Can it get wider?” Krinsky writes. “Yes, but we are quickly approaching the period immediately after Covid which was a bigger drawdown followed by significant Fed intervention. This also suggests patience is warranted here.”
