(Bloomberg) – It’s doomed, it’s a bear market rally, a recovery that won’t last. All the mud that has been thrown at stocks over the past month could turn out to be true. But it’s becoming increasingly difficult to isolate the S&P 500’s recovery as it hovers above a widely watched chart milestone.
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Four straight days of losses were wiped out in seconds on Wednesday after inflation data turned colder than expected. The S&P 500 is up 1.9% as of 12:50 p.m. New York, breaking above the 4,177 level that marked the peak during its May-June rally. Clearing the hurdle, which chartists call a “higher high,” is seen as a sign that more sustained gains are on the way.
“We’ve been cautious all year,” said Jonathan Krinsky, BTIG’s chief market technician. “Cracking the June highs based on the close suggests the trend is turning.”
Wednesday’s inflation data — the first since early 2021 when headline readings came in lower than economists forecast — prompted traders to bet quickly on the extent of the Federal Reserve’s expected tightening, which will reduce risky assets. I jumped.
More than $5 trillion in equity values were restored as the S&P 500 staged its strongest rebound this year, gaining 15% from its June low. Stocks rose as better-than-expected earnings and economic data allayed worries of an impending economic slowdown.
“Stocks are in rally mode, so buying all the time isn’t going to distract you,” said Steve Sosnick, chief strategist at Interactive Brokers. “While traders look forward to anything that can be clearly explained, it is a report,” he said. “But it fits the newfound bullish narrative.”
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In addition, Morgan Stanley and Goldman Sachs Group Inc. In a customer survey conducted by Wolfe Research during a webcast last week, 75% of respondents said the S&P 500 has yet to bottom.
The doubt is underscored by the Fed’s rate-hike cycle and the uncertain trajectory of its impact on the economy. GDP has already contracted for two quarters in a row. And major computer chip makers warned of a slowdown in demand.
“We’re not yet convinced that the bullish momentum we’ve been seeing in stock prices is still a strong trend,” said Lisa Erickson, senior vice president and head of Public Markets Group at US Bank Wealth Management. “Price pressures have eased in the latest CPI report, but there is still work to be done. And the Fed also wants to see clear and solid evidence to really change its approach to monetary policy.”
But equity resilience continues. What was once resistance on the price chart turned into support one by one and the bears were forced to open their positions. A Goldman basket of the smallest stocks is up 30% since early July, burning up anyone who was betting on stocks falling.
This month, the June peak has become the battle line between bulls and bears. The index surpassed this range on Monday, only to close below it as selling resumed and shares pared daily gains.
Jeff DeGraff, Co-Founder of Renaissance Macro Research: “The break of the 4,177 level in the S&P 500 is important from a post-trend perspective as it begins to build a series of higher highs and higher lows or higher lows or higher. Affectionately referred to as an uptrend.” Had posted a note last week. Through 2015, he was ranked as the top technical analyst for eleven consecutive years in Institutional Investor’s annual poll.
Sam Stovall, CFRA’s chief investment strategist, isn’t ready to fully settle this until the S&P 500 has recouped half of its January-June losses. For followers of Fibonacci analysis, a technical tool based on a sequence of numbers described by Leonardo of Pisa in “Liber Abaci” in 1202, reaching the midpoint is a sign that the market is ready for a full recovery.
“This will remain a bear market rally until we close the S&P above the 4,232 level,” Stovall said. “After that, history reminds us that no bear market has ever recovered 50% of its decline only to make even lower lows. That would be an early sign that the bears are behind us.”
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