Charts show Monday's new high is really bullish

Published Mon, Jul 11 20164:32 PM EDT

A new 52-week high after a long pause is a bullish signal for stocks that leads to a period of strong returns and fewer severe pullbacks, Bank of America told clients on Monday as the S & P hit record levels. After trading sideways for more than a year, the S & P 500 set a new intraday high on Monday, surpassing the previous record reached in May 2015. New highs by stocks after a pause of at least 300 calendar days are a "rare bullish signal," Bank of America Merrill Lynch technical analyst Stephen Suttmeier alerted clients in a research note. Source: Bank of America Merrill Lynch "Investors hate to chase a rally, but when the S & P 500 closes at a new 252-session (52-week) high after not closing at one for 300 or more calendar days, new highs should not be feared," he added. Since 1929, the S & P 500 reached 1,917 52-week highs on a closing basis, or only about 9 percent of the time, according to research by BofA Merrill Lynch. Of those instances, only 24 occurred with a pause of 300 of more calendar days (about 0.11 percent of the past 87 years). "The S & P 500 is up 91 percent of the time 250 trading days after this signal with an average return of 15.6 percent (14.8 percent median), which would put the S & P 500 well into the 2,400-handle should these gains materialize," said Suttmeier, emphasizing the statistical strength of the results. "The average intra-period S & P 500 drawdown for all 250-day periods going back to 1928 is 10.78 percent vs. an average intra-period drawdown of 5.00 percent during the 250 days following a new high after a long pause signal," he added. The analyst believes that a steady new high above the peak in May 2015 could set the path for a "multimonth bullish consolidation" that could take the S & P index into the 2,400-2,450 area, representing a gain of about 15 percent from Friday's close. "Many market breadth indicators remain bullish and support the case for new highs," he said, advising investors to use 2,074 and 2,000-1,950 as support levels.

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After trading sideways for more than a year, the set a new intraday high on Monday, surpassing the previous record reached in May 2015.

New highs by stocks after a pause of at least 300 calendar days are a "rare bullish signal," Bank of America Merrill Lynch technical analyst Stephen Suttmeier alerted clients in a research note.