'S&P 500' Seen Entering Second Leg of Bull Market

NEW YORK, Sept. 29 /PRNewswire/ -- The S&P 500 is entering the second leg of the bull market that started in March 2009 and has room to run, according to Mark Arbeter, CMT, Chief Technical Strategist at S&P Equity Research Services (ERS).

From Arbeter's perspective, the intermediate-term trend for the S&P 500 has turned to bullish from neutral, and he points out that the blue-chip benchmark has broken out from an inverse head-and-shoulders (H&S) formation. Arbeter presented his technical outlook during ERS' third-quarter 2010 webinar.

Arbeter, who does not see a bear market forming for domestic equities, sees market internals remaining strong, technical patterns indicating uptrends, and momentum in the bulls' favor.

He points out that internals from the major exchanges signal strength. For instance, the NYSE advance/decline line recently hit another all-time high, and up-versus-down volume on both the NYSE and the NASDAQ shows healthy levels in favor of the bulls, in his view. What's more, the leaders of the first phase of the bull market are leading the market higher once again, which is another positive, according to Arbeter.

Daily price momentum also remains in an uptrend and has not yet cycled into overbought territory. In his view, this suggests that the current advance has further to run.

Arbeter sees the potential for added gains over the next three to six months. The index has traced out a higher high and a higher low, which is the technical definition of an uptrend. He thinks that based on the size of the inverse H&S pattern, the S&P 500 could see a measured move to just above the April bull-market highs. With a strong finish for the week ending September 24, the index took out resistance at the 61.8% retracement level of the April-to-July correction.

"In our view, the next potential hurdle is just above 1,170, where chart resistance from the mid-May pivot high sits. In addition, a 76.2% retracement of the correction also lies just above the 1,170 region," Arbeter said during the webinar.

After September 20's strong breakout of the four-month price base, the S&P 500 pulled right back and successfully tested the breakout area of 1,128. This was followed with September 24's strong reversal higher. "This is what a healthy market does, and is something that we have not witnessed in a while," says Arbeter.

Moving into the fourth quarter, the weekly chart of the S&P 500 continues to show improvement, confirming Arbeter's view that higher prices could be seen. While the best stock market gains historically have come in the November-to-January time frame, "we think that might be altered this year due to the strong price move in September and what looks to be the four-year cycle low that was traced out in July," according to Arbeter.

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