In One Chart: Why the stock-market bulls ‘remain in control’ — in one chart



    Markets writer

    Chart watchers continue to focus on one key level for the S&P 500 — and how it’s signaling the bull run ain’t over for the U.S. stock market.

    The bulls “remain in control” as long as the S&P SPX, -0.23%  and other major stock benchmarks remain above their 50-day moving averages, said Adam Sarhan, founder of 50 Park Investments and 50 Park Capital, in a post at over the weekend.

    The 50-day moving average is a chart level that technical analysts often view as a support area, as it represents the average price that investors have paid over the past 50 days, as Investopedia has put it. It’s seen as a relatively low-risk spot to place transactions.

    But Sarhan isn’t 100% upbeat.

    “The tape is getting a little messy and several important areas are below their respective 50 DMA lines: Transports IYT, -0.40%  , steel stocks SLX, -0.05%  , Russell 2000 IWM, +0.16%  , Mid-Cap 400 MDY, +0.03%  , materials XLB, -0.02%  , just to name a few,” he added.

    “There are three options: 1. The market bounces from here, lifting these areas back above their 50 DMA lines. 2. The major indices rollover and break below support. 3. The market moves sideways for a few months to consolidate the recent move,” he said.

    It doesn’t sound like he thinks Door No. 2 is about to swing open.

    “Until the market cracks, the bulls have earned the benefit of the doubt, and the market likely heads higher from here,” Sarhan wrote.

    Read more: S&P 500 survives test of 50-day average

    And check out: This big test is coming for our ‘Teflon’ stock market

    Other technical analysts are also cheering the S&P’s behavior near its 50-day line.

    “Stocks benefited from an oversold bounce last week, allowing the S&P 500 Index to post a gain of 0.8% after a successful test of its 50-day moving average,” said Katie Stockton, BTIG’s chief technical strategist, in a note over the weekend.

    See: Play (stock-picking) ball! An ‘all-star lineup’ of the best stock for each sector

    Early Monday, U.S. stock futures ESM7, -0.01%  were pointing to gains.

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