As the S&P 500 index bounced back from its April lows, a technical expert highlights that the indicators point toward a real recovery as the index reversed its short-term downtrend, doubling its uptrend over the course of the recovery.
What Happened: According to a LPL Financial chart showing the balance of the S&P 500’s uptrends versus downtrends, on April 8, the uptrend accounted for 29.4%, while downtrends stood at 70.2%.
However, the index quickly recovered by May 29, where the uptrends doubled, standing at 60%, while downtrends accounted for 39%.
Adam Turnquist, the chief technical strategist at LPL Financial, explained that this change was led by the significant technical progress over the last month of May.
“The index has reversed a short-term downtrend and continues to hold above its recent price gap above the 200-day moving average (dma).”
He stated that a close above the May highs of 5,969 points should open the door for a retest of the prior high at 6,144 points.
“There is a growing list of technical evidence that suggests this recovery is real, and not a ‘bull trap’ or ‘bear market rally.’ For investors, this means dips above support should be used as buying opportunities,” he added.
This comes after the broader market wrapped up the month of May with a 6.2% gain, marking its best month since November 2023 and its best May since 1990.
Turnquist highlighted that when the index rallies 3% or more in May, historically, a month plagued by "Sell in May and Go Away" sentiment, the year-end returns average at 8.9%, with 73% of periods producing positive returns.
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Why It Matters: The exchange-traded fund tracking the S&P 500 index, SPDR S&P 500 ETF Trust SPY, which ended Monday at $592.71, has risen above its 200-day simple daily moving average of $581.94.
It was also above its eight, 50, and 20-day moving averages. Its relative strength index stood in the neutral zone at 62.60, whereas its MACD line of 9.10 was below the signal line of 9.44, which indicates a bearish signal. This suggests that the short-term momentum is weaker than the medium-term momentum.
However, since both the MACD and the signal line are above the zero line, the momentum is bullish, despite the recent bearish crossover.
Additionally, the negative histogram value of -0.34 confirms the bearish crossover and indicates a loss of bullish momentum or the start of bearish momentum.
Thus, the current state suggests that the upward momentum is waning, and there might be downward pressure or consolidation.
However, when considering all the other indicators, the chart largely shows a bullish momentum.
Price Action: The SPY and Invesco QQQ Trust ETF QQQ, which track the S&P 500 index and Nasdaq 100 index, respectively, rose on Monday. The SPY was up 0.56% at $592.71, while the QQQ advanced 0.79% to $523.21, according to Benzinga Pro data.
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