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S&P 500’s 200-Day Average Shows Resilience: Technical Analysis

The Standard & Poor’s 500 Index rebounded after touching its 200-day moving average last week, a sign that the market’s decline from an April peak may be limited, analysts who study charts to make predictions said.

The benchmark index for U.S. equities fell to as low as 1,258.07 on June 16, 0.17 point above its average level of 1,257.90 in the previous 200 days, before recouping the loss and ending the day higher. The S&P 500 has risen 2.3 percent as of 12:57 p.m. New York time from the intraday low to trim its decline from the 2011 peak on April 29 to 5.1 percent.

The 200-day moving average “is a pretty significant support level,” as it’s close to the S&P 500’s low for the year in March and to the closing level at the end of 2010, Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research in Cincinnati, said in an interview. “There could be some potential buying here,” he said. “We’re encouraged the market held pretty well. Longer term, the uptrend is still in place.”

The S&P 500 finished last year at 1,257.64 after rallying 13 percent. This year, the index is up 2.9 percent as government stimulus measures and better-than-estimated earnings countered concern about Europe’s debt crisis and weaker-than-forecast economic data.

The benchmark index has stayed above its 200-day moving average since Sept. 13, Bloomberg data show. Christopher Verrone, head of technical analysis at New York-based Strategas Research Partners, said he expects the market to resume its advance because the S&P 500’s retreat so far has been limited at that threshold.

“Major market tops typically form below 200-day moving averages,” he wrote in a note today. “We’ll need to see a more severe deterioration to trend before our longer-term bias turns more cautious.”

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