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S&P 500 Stuck in ‘Battle’ Between Trends: Technical Analysis

The Standard & Poor’s 500 Index is caught in a “battle” between technical measures sending conflicting signals on whether stocks will rise or fall, Janney Montgomery Scott LLC said.

The biggest monthly rally since 1991 failed to keep the benchmark measure of U.S. equities above its 200-day average, according to data compiled by Bloomberg. At the same time, its 50-day average began rising for the first time since June. The index closed at 1,237.90 yesterday, 2.8 percent below its 200-day level and 3.8 percent above the 50-day figure.

The charts “underscore the battle we’re seeing between the market’s longer-term declining moving averages and its short-term rising moving averages,” Dan Wantrobski, the Philadelphia-based director of technical research at Janney, wrote in a report yesterday. “Due to the close proximity the price action of each benchmark now shares with these indicators, we will likely have an answer soon.”

The S&P 500 rose 11 percent in October as European leaders took action to contain the region’s debt crisis. It broke above its 200-day average on Oct. 27 for the first time since August after the European rescue fund was expanded to 1 trillion euros ($1.4 billion), then sank below the threshold two days later as concern grew that Europe will struggle to fund the plan.

“It will be crucial for the major benchmarks to break through their respective” long-term trend measures on a closing basis, Wantrobski said. “If they fail to do so, it will confirm U.S. equities have entered another cyclical downtrend.”

358-Day Streak

The S&P 500 stayed below its 200-day moving average from Aug. 2 through Oct. 26, the longest streak since the 358 days ended May 29, 2009, according to data compiled by Bloomberg. The average has been falling since Aug. 9, the data show. The 50-day average was surpassed on Oct. 10 for the first time since July as the index ended its longest run below the threshold since 2008, according to the data.

“We advise watching these 50-day MAs,” Wantrobski said. “If they start to roll over again and align with their longer-term counterparts, traders should consider moving to the sidelines in anticipation of further market downdrafts going forward, with the possibility of entering another cyclical bear market that takes us into the New Year.”

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