Investors are beginning to question whether the S&P 500 can sustain its upward momentum amid worries that the rally in U.S. stocks may be testing its limits coupled with unease over geopolitical tension between Russia and the West, but chart analysis suggests that no trend change is imminent.
The S&P weekly chart shows a well-established habit of behavior. Starting with the uptrend development in September, 2010 the S&P 500 has consistently moved up in a series of trading bands.
This continues to be a strong uptrend with each upthrust target defined by the width of the trading bands. The market broke above the top of the consolidation band around 1850 and the trading band calculation set a target near 1990. This target level was achieved and is followed by the S&P 500's typical habitual behavior. Each time the upper edge of a trading band its reached the S&P 500 retreats to the upper edge of the long-term Guppy Multiple Moving Average (GMMA). And then the S&P 500 develops a strong rebound rally that moves above the upper edge of the trading band.
When the S&P 500 was near 1700 many analysts said the market would fall. Instead the index developed a rally breakout and moved to the next projected target near 1850. Again, at this level, many analysts said the market would fall but the index rallied above this level and went on to reach the next projected target. This is the habit with the S&P 500 index.
The key factor to look for is the consistent strength of the long-term GMMA. This is shown by the steady degree of separation. When the market does develop a dip it uses the long-term GMMA as a support level. The dips in June and October of 2013 and February 2014 all touched the top of the long-term GMMA before developing a new rally and breakout above resistance. The long-term GMMA did not show any signs of compression.