The Standard & Poor’s 500 Index may climb more than 6 percent after last week’s retreat triggered widespread “oversold buy signals,” according to a technical analyst at MKM Partners LLC.
The U.S. equities gauge will rebound to 1,530 after last week’s 1.3 percent decline, Katie Stockton, chief market technician at MKM in Stamford, Connecticut, wrote in a report dated yesterday.
Equities fell last week on concern Europe’s debt crisis is worsening and stimulus measures may not be enough to boost economic growth. The S&P 500 still climbed 2.4 percent in September for the fourth straight monthly gain, and ended the third quarter with a 5.8 percent advance. The index closed at 1,440.67 on Sept. 28.
“We expect the S&P 500 to see its daily stochastics turn up from oversold territory this week and would be adding exposure to cyclical sectors in anticipation of an oversold bounce,” Stockton wrote. “The uptrend still has positive short- and intermediate-term momentum, based on the 20-, 35- and 50-day moving averages and the weekly MACD indicator.”
Stochastics, a technical analysis tool based on momentum measures, are often used to identify whether a security is overbought or oversold. MACD refers to moving average convergence-divergence, which tracks the difference between moving averages of various durations.
Stockton said the 1,530 level was indicated by “the breakout earlier this month.” The S&P 500 rose to a 4 1/2-year high of 1,465.77 on Sept. 14.
A “more significant” correction is likely around the U.S. earnings season, with initial support for the S&P 500 near 1,420, the analyst wrote. Alcoa Inc., the largest U.S. aluminum producer, will be the first company in the Dow Jones Industrial Average to report results for the last quarter on Oct. 9.
In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.