Sept 30 (Reuters) - Stock bulls looking for the S&P 500 to resume the rally that propelled the benchmark US index to record highs in August should be warned: technical analysis suggests this frustrating period of sideways trading can go on for a while longer, though they shouldn’t lose heart yet.
The S&P 500 has traversed a narrow range for more than 30 sessions since hitting a record intraday high of 7,816.70 on August 13. At its 7,670.84 close on Tuesday, it was down 1.9% from that peak.
In this time, the index has shown resilience, contributing to optimism for a renewed upward advance.
One encouraging sign: the S&P 500 went through a similar phase between hitting record highs in June and August. Then, the S&P 500 fell as much as 5.03% from its intraday peak to its trough, and spent weeks chopping around before finally breaking out to new highs 43 trading days later. This time, the deepest pullback was just 3.95%.
Having said that, there are risks in both directions and the market is showing indecision.
One reflection of this lack of commitment comes from a gauge of market volatility called daily Bollinger Bands. They remain narrow by historical standards, a classic sign of indecision. It is also a condition that often precedes a significant breakout, though not an indicator of which direction the market will take.
Something technical analysts seek to discover is which levels will halt or slow stocks when they are falling – support – or restrain gains when prices are rallying, known as resistance. Often, prices will accelerate when they move beyond support and resistance.
In discerning these key levels, analysts often rely on technical tools such as previous highs and lows, as well as moving averages – which strip out price extremes to show an underlying trend. Another tool is something called Gann lines, which identify support and resistance with mathematical calculations based on price and time.
If the S&P 500 were to start sliding, initial support is the 7,645-to-7,640 area where the 50-day moving average and a weekly Gann line now reside. Below that, the 100-day moving average near 7,555 and the September 16 low at 7,507.77 become key levels to watch.
If the index were to rise, resistance comes in at the September 22 high of 7,782.19 and then the record intraday high of 7,816.70, according to LSEG data. If bulls can finally break free of the recent trading range, 8,000 looms as a major follow-up target.
What the chart shows:
S&P 500 moving sideways since mid-August
Support at 7,645-7,640, 7,555 and 7,507.77
Targets for gains: 7,782.19, 7,816.70 and 8,000
(Mapping the Market is a daily column written by Reuters journalists. The commentary is based on a technical analysis of financial charts, which helps assess the likelihood of future price moves but does not guarantee the outcome. The column does not constitute investment advice or trading recommendations. )
Terence Gabriel is a Reuters market analyst. The views expressed are his own. Editing by Burton Frierson and David Gaffen
