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 ChartYourTrade.com 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.
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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.