Investors should buy shares in the Standard & Poor’s 500 Index because the U.S. equity benchmark may break out of the range in which it’s been trading since August, Credit Suisse Group AG said.
The index may advance to 1,252 or 1,256 this week and might climb as high as 1,272 in the next week or two before retreating, David Sneddon, Credit Suisse’s London-based head of technical analysis, said in a phone interview today. Credit Suisse recommended buying the S&P 500 at 1,227 to 1,222 and selling at 1,260 to 1,270. If the gauge doesn’t rise, the bank advised investors exit the strategy at 1,214.
“We have broken through some good technical resistance around 1,230 to 1,236, which is some price resistance and a key medium-term average that we look at,” Sneddon said. “We have been bullish for 1,220 to 1,230, and we’re staying bullish because we think the rally would extend further.”
The S&P 500 has traded within a range of 1,230 to 1,068 since August, according to Credit Suisse, as concern grew the European sovereign debt crisis was spreading, global growth was slowing, and as S&P stripped the U.S. of its AAA credit rating. The benchmark rose 1.9 percent Oct. 21, closing at 1,238.25, its highest level since Aug. 3. S&P 500 futures expiring in December advanced 0.1 percent to 1,235.9 at 7:55 a.m. in New York today.
A close below 30.15 for the Chicago Board Options Exchange Volatility Index would be an “early sign” of further declines in the volatility gauge known as the VIX, Credit Suisse said in a report today. The VIX jumped to 48 on Aug. 8, its highest level since March 2009. It has since fallen 35 percent to 31.32, compared with its 21-year average of 20.50, Bloomberg data show.
“The higher the VIX goes, the more bearish it would be typically for equities,” Sneddon said. “The VIX coming lower is more of a bullish sign, and that is what is keeping us again a bit more constructive on the market as well.”
In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security or index.