S&P 500 On Pace For Highest Weekly Close Of 2016; When Will February Rally Face Its First Major Technical Test?

The S&P 500 has had a pretty easy go of it during its 11 percent rally since late-February. In fact, barring a late-day sell-off, the index is on pace for its highest weekly close of 2016 this week.

However, many Wall Street analysts have noting a rising chance of a U.S. recession, and Chinese economic numbers continue to disappoint. These developments have many traders expecting that the bounce in the S&P in simply a temporary one, much like the one the index experienced in October of last year.

When will the S&P 500 rally face its first major resistance? A look at the charts reveals that the answer is likely very soon.

A downward sloping trend line connecting the three peaks in November and December of last year currently stands at around 2020, the same region where the 200-day simple moving average rests. This area could serve as the first major test for the rally, but even a breakout above this level would not necessarily prove bullish.

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Looking back to the market’s all-time high in May of last year, a much more gentle-sloping bearish trendline can be drawn as well. This line indicates that the S&P 500 could see another 4.2 percent upside from current levels to around 2100 while still remaining in a bearish long-term trend of declining peaks.

Market bulls and SPDR S&P 500 ETF Trust SPY shareholders are hoping for a breakout above 2100 as a confirmation that the trendline is no longer in play.

Finally, a breakout above November’s high of 2116 would be the Holy Grail for market bulls and a strong indication that those calling for a bear market have been premature.

Disclosure: the author holds no position in the stocks mentioned.