Mocked by Everyone, Stock Rally Sits at Cusp of Landmark

“We’re not yet convinced that the upturn in stock prices we’ve seen is yet a firm trend,” said Lisa Erickson, senior vice president and head of public markets group at US Bank Wealth Management. “Price pressures while they’ve come down in the recent CPI report still have a way to go. And the Fed also wants to see clear and convincing evidence for it to really change its monetary policy approach.”

But the equity resilience has continued. One by one, what used to be resistance in price charts turned into support, and bears were forced to unwind their positions. A Goldman basket of most-shorted stocks has soared 30% since the start of July, burning anyone wagering on share declines.

This month, the June peak has become a battle line between bulls and bears. The index briefly topped that threshold on Monday, only to close below it as selling resumed and stocks wiped out their intraday gains.

“Breaching the 4,177 level on the S&P 500 is important from a trend following perspective because it starts to establish a sequence of higher highs and higher lows, or what is more affectionately known as an uptrend,” Renaissance Macro Research co-founder Jeff deGraaf, wrote in a note last week.

He was ranked as the top technical analyst in Institutional Investor’s annual survey for 11 straight years through 2015.

Sam Stovall, chief investment strategist at CFRA, is not ready to call all clear until the S&P 500 recoups half its losses that incurred from January through June. To adherents of Fibonacci analysis, a technical tool based on a number sequence described by Leonardo of Pisa in “Liber Abaci” in 1202, reaching the midpoint is a signal that the market is poised to make a full recovery.

“This remains a bear market rally until we close above the 4,232 level on the S&P,” Stovall said. “After that, history reminds us that no bear market ever recovered 50% of its decline only to set an even lower low. It would be an early signal that the bear is behind us.”

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