Analyst: The S&P 500 Chart Is Looking Very Bullish

The S&P 500 is off to a hot start this year, finally pushing above 2,941 to a new all-time high. Bank of America technical analyst Stephen Suttmeier discussed what investors should look for when the S&P finally makes it to new highs.

Suttmeier said in a research note the S&P 500 flipped to a bullish trading cycle in April that confirms the index’s rally off of December lows.

However, traders should be on the lookout for an extended consolidation period similar to the ones the index experienced in 2016 and 2012 when it flipped to bullish trading periods. In those two occasions, the index pulled back to support at its 26-day and 40-day simple moving average before rallying.

Déjà Vu

In the near term, Suttmeier said traders should look to the index’s rallies off of lows in 2016 and 2011 for guides, and the comparisons suggest a major milestone could be coming in the next couple of months.

“The 2011 comparison suggests a probe to SPX 3000 by June and the prior trends from 2011 and 2016 show a 3Q consolidation lower with support near 2735-2680 in August to September ahead of a seasonal rally into year-end,” Suttmeier wrote in the note.

Suttmeier said the previous 2011 and 2016 rallies suggest the S&P 500 could continue to trend in a bullish direction through the 2020 U.S. presidential election, with the potential for the index to hit 3,500 by the beginning of 2021.

See Also: Why Technical Analysis Works

Underlying Signals

In addition to the key breakout in the S&P, Suttmeier said there are a handful of underlying technical metrics that are also very bullish at the moment.

The advance-decline ratio among the index’s 15 most active stocks recently broke out to the upside. Bank of America’s VIGOR long-term accumulation-distribution volume indicator, a historically leading indicator, suggests new highs ahead for the S&P 500. Other breadth indicators have also confirmed the recent rally, but Suttmeier would still feel more comfortable if more stocks were hitting 52-week highs.

Now that the S&P 500 is at new highs, some traders are becoming uneasy about the market’s valuation given strength in the U.S. dollar. However, Suttmeier said the S&P 500 has historically rallied during both extended periods of USD weakness and extended periods of USD strength. In fact, he said the index has typically performed slightly better during periods of strength.

If Suttmeier’s analysis is correct, short- and medium-term traders should be loading up on S&P 500 index ETFs like the SPDR S&P 500 ETF Trust SPY and adding to their positions on any dips.