Trading Nation

Why the S&P's speedy snap-back is a 'very good sign'

Trading Nation: The market's next move
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Trading Nation: The market's next move

The enjoyed a big reversal on Tuesday, recovering from a 25-point deficit to turn a 12-point rally. That's the biggest reversal for the large-cap index in nearly a year. And according to one noted technician, that's a great sign for the market's next move.

"It looks to us like we're finding some footing here, at least short term, and to us, it's a very good sign when the market sells off hard in the morning and starts to claw back those losses at the end of the day," said Craig Johnson, senior technical research analyst at Piper Jaffray and the president of the Market Technicians Association.

The snap back "tells me people want to own this market despite all the negative sentiment we are hearing out there constantly day in and day out about Greece, and China, and other markets," he said Tuesday on CNBC's "Power Lunch."

Johnson also notes that the S&P 500 has managed to bounce off of the 200-day moving average, a line that averages the 200 most recent closes, as well as a key trend line.

With the market's support intact, then, stocks look primed to rally off of current levels, according to Johnson.

From a fundamental basis, Erin Gibbs of S&P Capital IQ is also positive on stocks. She makes the point that the S&P 500 is now trading at about the lowest valuation, on a forward price-to-earnings basis, of the year.

Further, if as many companies beat earnings in the upcoming second-quarter earnings season as in the last earnings season, "we could end up with a really great quarter," she said Tuesday.

Indeed, even if the second quarter disappoints, Gibbs said she expects to see "very strong revenue growth for the second half … and when people start focusing on the second half, I also expect the market to pick up."

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