What Does Historical Performance Suggests from Here?

S&P 500 Analysis

• S&P 500 enters into a technical recession despite tightening financial conditions
• Average S&P 500 performance after bull market confirmation suggests positive returns for longer time horizons
• Price action tests the August 2022 high ahead of US CPI and FOMC
• The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library

S&P 500 Enters into a Technical Bull Market

It is widely accepted that a 20% rise off a major low marks a technical bull market – something that the S&P 500 managed to achieve at the end of last week. Mega-cap tech stocks and, more recently, AI-linked stocks have been propelling the index higher while the other roughly 490 stocks have posted lackluster performance.

S&P 500 Enters Bull Market

Source: Refinitiv, prepared by Richard Snow

Taking a look at prior technical bull markets it is possible to gather performance data in the weeks/months that followed to get an idea of where the index can trade from here. The table below reveals the performance for 1 week, 6 month and 12 month performance from the date of the technical bull market with the averages below.

Table: 1 Week, 6 Month and 12 Month Performance after a Technical Bull Market

Therefore, in the week following the technical bull market, returns on average tended to be slightly negative, at -0.83%. In the 6 months that followed the start of the bull market, the S&P 500 posted an average of 7.93%, while the 12 month performance stood at 9.32% on average.

Projecting those averages into the future places the index around 4530, in the vicinity of the 61.8% Fibonacci retracement of the major 2022 decline. The 12 month projection based on the average performance places the index at 4596, not far from the March 2022 swing high at 4637.

Average S&P 500 Performance after Confirming a Technical Bull Market

Source: TradingView, prepared by Richard Snow

After Friday’s attempt to reach the August 2022 high prices attempt another touch of this level at 4325 but Monday’s trade appears muted as markets anticipate tomorrows US CPI print and Wednesday’s FOMC rate announcement and summary of economic projections which have the potential to create notably more volatility.

As the index nears resistance, the RSI indicator nears overbought territory however it must be noted that significant event risk can send markets into extreme positions for extended periods if momentum accompanies the data. After 4325, resistance appears at 4480. Should 4325 hold, a retracement towards 4195 is not out of the equation, considering how hot the bullish advance has become recently.

S&P 500 Daily Chart

Source: TradingView, prepared by Richard Snow

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX