S&P 500 May Hit 1,315 on Momentum, MKM Says: Technical Analysis

Dec. 7 (Bloomberg) -- The Standard & Poor’s 500 Index held at its 50-day moving average during its November decline, a sign that U.S. stocks have the momentum to climb further, Katie Stockton of MKM Partners said.

After sinking below its average price from the past 50 days on an intraday basis during the last two days of November, the S&P 500 closed above that threshold, then rose 3.7 percent in the next three days, Bloomberg data shows. The index now may climb to the next level of resistance at 1,315, Stockton said.

The rebounds from the 50-day average prompted speculation last week among technical analysts, who base forecasts on chart patterns, that the S&P 500 would avoid the kind of drop it suffered after it breached the threshold in May and fell as much as 12 percent. Stockton’s projection would take the index to a level last hit in August 2008, the month before Lehman Brothers Holdings Inc.’s bankruptcy, and represents 7.5 percent gain from yesterday’s close.

The S&P 500 “discovered support at its 50-day moving average in what we view to be a testament to the positive momentum supporting its uptrend,” Stockton said in a note dated Dec. 5. “Only short-term momentum wavered during the pullback, while intermediate-term momentum remained strongly positive. This increases the likelihood of a decisive breakout to a new recovery high before year-end.”

The benchmark has rallied 20 percent since its 2010 low in July as corporate profits improved and the Federal Reserve expanded its asset-purchase program to suppress interest rates and stoke the economic recovery.

The S&P 500 rose 0.8 percent to 1,232.92 at 9:53 a.m. in New York.

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.