RBC Sees S&P 500 Near Long-Term Peak: Technical Analysis

A long-term peak in the Standard & Poor’s 500 Index (SPX) is developing as the gauge diverges from other equity measures, meaning stocks are likely to decline next year, according to RBC Capital Markets.

While the S&P 500 surpassed its 2011 high last month, other stock measures including the Russell 2000 Index (RTY) of small U.S. companies and the MSCI Emerging Markets Index (MXEF) failed to reach last year’s peaks, sending a warning sign, according to a May 15 report from RBC’s Robert Sluymer.

“The MSCI and Russell didn’t confirm the S&P’s new cycle highs,” Sluymer, a technical analyst at RBC in New York, said during a phone interview yesterday. “These are the types of divergences you start to get as market tops develop.”

At the same time, the index may rebound in the next few weeks after reaching its “support band” of 1,300 to 1,330, Sluymer said in the May 15 report. The S&P 500 fell 6.6 percent between April 2 and yesterday, when it closed at 1,324.80.

Cyclical companies are showing no signs of a reversal even though they appear “oversold,” Sluymer said. Caterpillar Inc. (CAT) and Joy Global Inc. (JOY) are two examples of economic-sensitive companies that have shown no evidence of bottoming, he said.

“We’re working through a much bigger top here,” he said in the interview. “We’re already seeing the market rotating away from cyclical leadership towards defensive themes.”

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

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

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