On Monday, BofA highlighted significant levels for the S&P 500 following the recent rally. They said the SPX is displaying signs of potential upside exhaustion, with daily and weekly Demark indicators and Japanese candlestick patterns indicating a risk for the NYSE Composite and NASDAQ Composite. Despite these signals, the SPX support levels are identified at 4800 and 4600, with resistance at 5200 and 5600.
According to the investment bank, the SPX remains on a bullish trajectory, featuring a "cup and handle" pattern breakout, which suggests a potential rise to 5200 and even 5600. Last week, the index approached the 5200 mark, reaching a peak of 5189.26. Analysts anticipate that the SPX might face challenges around the 5200 level before potentially experiencing a dip that could refresh the bullish trend and set the stage for a push toward the 5600s.
Furthermore, BofA said that reinforcing the bullish outlook, the SPX cumulative net up volume has surged from a double bottom pattern formed in October 2022 and October 2023, confirming the rally's strength. This breakout in cumulative up volume as opposed to down volume indicates that investor conviction is strengthening and there is potential for further growth toward the highs seen in 2021.
Further bullish confirmation comes from the advance-decline (A-D) lines for the SPX and NYSE Composite stocks, both of which have reached new highs, according to the firm. This broadening rally suggests that if a pullback does occur, it could be seen as a buyable dip within the current cyclical and secular bull markets, as it does not stem from diminishing market breadth.
However, BofA acknowledges that there remains a risk factor. The most active advance-decline line, representing the US top 15 most active stocks, has not confirmed the rally, showing a bearish divergence year-to-date in 2024. This is considered a market risk, yet the new highs for the SPX and NYSE stocks A-D lines, along with stability in the S&P 500 equal weight and small caps, imply that the lag in the most active A-D line might be due to a shift away from mega-cap stocks rather than a significant bearish market breadth signal.
Lastly, investor sentiment has been increasingly bullish since late 2023. The American Association of Individual Investors' Bullish Readings (AAIIBULL) is currently at 51.7, which is below the climactic levels of 57-60 seen in previous years. Historically, the SPX has peaked after such climactic bullish sentiment levels, suggesting that there may still be room for upside in the market.