Bank of America sees a summer rally for the S&P 500 as charts signal 'upside breakout'

Published Mon, Jul 20 20202:19 PM EDT

A strategist at Bank of America thinks the S & P 500 will continue its relentless rally off the mid-March lows as a series of technical signals point to further gains. The S & P 500 has surged more than 47% since hitting an intraday low on March 23. Those gains were driven in part by massive stimulus from U.S. lawmakers and the Federal Reserve. Hopes for potential coronavirus vaccine and treatments also gave stocks a boost. However, the S & P 500 has been stuck in a range of about 150 points this month, struggling to make a meaningful move above 3,230. Crossing that level would put the S & P 500 in positive territory for the year. But Stephen Suttmeier, Bank of America's technical research strategist, thinks more gains lie ahead. "We favor a summer rally and believe that the S & P 500 (SPX) is positioned for an upside breakout." Suttmeier cited a number of technical factors that signal further gains, including a new high on the S & P 500's advance-decline line, the formation of a "Golden Cross" and continued closes above key moving averages. The advance/decline line measures the difference between the number of stocks rising, and falling, on a daily basis within an exchange or index. A rising advance-decline line is seen as a bullish signal because it indicates broad market participation in during a prolonged upward move. This new high, Suttmeier notes, is indicative of a "bullish rotation" taking place in the market as more sectors participate in the rally. One of the key concerns about the market's rally from the mid-March lows has been the sharp move higher in "FAANGM" — Facebook , Amazon , Apple , Netflix , Microsoft and Alphabet — while the rest of the market lagged. Suttmeier added the S & P 500 has formed what is known as a golden cross pattern, which happens when the index's 50-day moving average breaks above its 200-day counterpart. History shows the S & P 500 is up 68% of the time when a golden cross is formed and averages a return of 9% over 260 days. During economic downturns, these returns get amplified to 20% . Suttmeier also pointed out the S & P 500 has remained above its 40-week and 26-week moving averages. These levels "are also key risk management levels for the SPX. Weekly closes above these weekly MAs since late May increase the potential for a shift to a bullish trend from a bearish trend," he said.

A trader looks at price monitors as he works on the floor at the New York Stock Exchange.

Brendan McDermid | Reuters

A strategist at Bank of America thinks the S&P 500 will continue its relentless rally off the mid-March lows as a series of technical signals point to further gains.

The S&P 500 has surged more than 47% since hitting an intraday low on March 23. Those gains were driven in part by massive stimulus from U.S. lawmakers and the Federal Reserve. Hopes for potential coronavirus vaccine and treatments also gave stocks a boost.

However, the S&P 500 has been stuck in a range of about 150 points this month, struggling to make a meaningful move above 3,230. Crossing that level would put the S&P 500 in positive territory for the year.

But Stephen Suttmeier, Bank of America's technical research strategist, thinks more gains lie ahead. "We favor a summer rally and believe that the S&P 500 (SPX) is positioned for an upside breakout."