Financial markets are slow this May as investors await the end of the debt ceiling negotiations. As such, it is a good time to look at the bigger picture and focus on the long-term perspective.
One thing strikes me as odd. While the Federal Reserve raised the interest rate several times, the S&P 500 is at the year’s high.
Moreover, at this point, there are at least three reasons to be bullish on the S&P 500 index:
- SPX gained more than 8% YTD
- The 200-day moving average curls higher
- Inverse head and shoulders pattern favors more upside
S&P 500 is up more than 8% on day 100
An interesting statistic tells us that when the S&P 500 index is up more than 8% on day 100, the rest of the year tends to be bullish. In fact, whenever that happened, the full year has never been lower.
The 100th trading day of the year is on Thursday, and the S&P 500 is up 9.2% YTD. The odds favor more upside for the rest of the year if it holds onto its gains.
The 200-day moving average curls higher
The 200-day moving average is the favorite technical indicator to watch when interpreting the bigger picture. It shows longer-term trends, and it just turned higher.
Looking back at the past fifty years, the chances are that more upside follows after such a turn.
Inverse head and shoulders pattern favors more upside
Finally, one may spot an inverse head and shoulders pattern. After rallying from the lows, the market failed at the neckline, but every dip has been bought.
More importantly, it builds energy to overcome horizontal resistance. Should it succeed, the pattern’s measured move, seen in orange above, points to more gains.
All in all, investors may be afraid to take a chance on stocks in times of high interest rates and geopolitical uncertainty. But the S&P 500 looks bullish.