NEW YORK ( TheStreet) -- July's rally, especially the impressive move seen this week, may have laid the technical groundwork for the S&P 500 to surge to new highs.
"With Tuesday's strong stock market rally off of multiple pieces of technical support, and the nice follow-through buying on Thursday, we think it is possible that the major indices are finally setting up for a breakout to the upside, and at last, breaking from the price consolidation that started back in February," writes Mark Arbeter, chief technical strategist at Standard & Poor's, in a research note Friday afternoon. "Looking back, the market has been hit with a fair amount of bad news in recent months, but the bears were unable to take prices below the key lows we saw in March."
Arbeter explains that the S&P 500's bounce since pulling back to the 1,295 top of its June base this past Monday was a positive sign, as that level represents a nearly 62% retracement of the rally the index saw from June until early July. He says that to complete the price base, the S&P 500 would need to exceed its April closing high of 1363.61 on April 29, as well as the intraday high just north of 1370 at the beginning of May.
"We think an upside breakout would open the door for a move to the 1,450 to 1,475 area some time in the fourth quarter," he writes. "This, in our view, would complete a five-wave structure off the March 2009 bear-market bottom."The recent action in two downtrodden sectors -- the financials and the semiconductors -- is also heartening, according to Arbeter. "While these areas are still in a downtrend, we are starting to see some early signs that they may be bottoming," he says. "Both the SOX
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV