The ingredients are in place for an explosive U.S. stock-market rally, but there’s still room for doubt about whether the bears have been vanquished, a closely followed Wall Street technical analyst argued Thursday.
The S&P 500 index
SPX,
-0.21%
is headed toward a pair of important resistance levels on the price chart as it rallies off its March 13 intraday low at 3,809, said Mark Arbeter, president of Arbeter Investments LLC, in a note. A stumble by the large-cap benchmark that began in February had put it on track for a test of a downside target of 3,656, based on a bearish wedge pattern, but the S&P 500 bounced before ever getting near it.
A bearish wedge is marked by a contracting range of prices combined with a downward overall move in prices over time. A bullish wedge sees an upward move in prices over time.
Stocks ralliedThursday, with the S&P 500 up 1.3%, and the Dow Jones Industrial Average
DJIA,
-0.42%
rising around 383 points, or 1.1%, with both indexes ending at their highest since February.
Projecting out a week, the S&P 500 is near a test of resistance around 4,220, he wrote. If it occurs, by taking out the intraday high at 4,195 from Feb. 2, the index would take care of chart resistance and would mark three higher highs and two lower lows off the October bottom, he noted.
He identified the next resistance cluster after that in the 4,300 area, which marks the high from August and a 61.8% Fibonacci retracement of the bear market.
Many technical analysts pay attention to what’s known as the Fibonacci ratio, attributed to a 13th century Italian mathematician known as Leonardo “Fibonacci” of Pisa. It’s based on a sequence of whole numbers in which the sum of two adjacent numbers equals the next highest number (0,1,1,2,3,5,8,13, 21 …).
“A break above that zone could send the bears into hibernation and another round of FOMO could be on,” Arbeter said, using the acronym for the “fear of missing out.”
Of course, it’s no sure thing. And some of the ingredients of a transition back to a bull market remain missing.
“What we have not seen off the October low, which is so typical of an emerging bull market and major trend change, is that lock-out rally, or consistent move higher, that catches many with too much cash and is inhospitable to letting investors waiting for a pullback into the market,” Arbeter said, reinforcing that “this is a confusing time and a long-term technical resolution” to a new bull market remains in question.
“The fuel is there to blow the top off this market it just needs to be ignited. Then again, the headwinds might blow the fire out before it gets going,” he wrote.
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