S&P 500 Has Support Similar to November Dip, May Rally: Technical Analysis

The stock market’s retreat from a February peak may be just as short as its dip in November, because the Standard & Poor’s 500 Index is again halting its drop at its weekly “conversion line,” Dahlman Rose & Co. said.

The benchmark for U.S. equities rebounded at the technical support level on its General Overview Charts both weeks since the 32-month high on Feb. 18, data from Bloomberg and Dahlman Rose show. In November, after the index recovered at the same support level for three weeks, the S&P 500 had its best December return since 1991 and rose for the next two months.

Rick Bensignor, chief market strategist at Dahlman Rose, said the resilience in the stock market may force him to abandon his “overly cautious stance,” including an estimate that the S&P 500 may drop as low as 1,230. Should the S&P 500 close tomorrow at or near this week’s high, the market may be headed for further gains, he said.

“Buying stocks is still en vogue for most, and while sellers are chompin’ at the bit for some solid reason to hit the red button, they haven’t yet found due cause,” Bensignor wrote in a note yesterday. “Should we go out near the highs of the week this Friday, I suspect we need to think that another leg up is coming, and one we’d not want to fight.”

Bensignor may join a growing number of analysts who have withdrawn forecasts for a pullback. According to Investors Intelligence’s analysis of investment newsletters for March 2 through March 8, 26.7 percent of the writers anticipated a correction, or 10 percent decline, in the market, down from 29.9 percent last week. The drop was the biggest since Nov. 16.

The S&P 500 declined 3.9 percent from Nov. 5 through Nov. 16, the most that the index has fallen from a peak since the end of August. The benchmark closed at 1,320.02 yesterday, down 1.7 percent from its February high.

Technical analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index. General Overview Charts, also known as Ichimoku charts, use the midpoints of historic highs and lows to analyze a security or index.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.

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