S&P 500 in line for summer rally if levels hold

By Rodrigo Campos

NEW YORK, May 27 (BestGrowthStock) – The current level on the S&P
500 index (.SPX: ) could be a starting point for further
strength in stocks in the summer, even as the reasons for the
recent correction remain on investors’ minds.

The S&P 500 fell nearly 15 percent from its intraday high
in late April to its low earlier this week, as investors
worried the escalating debt crisis in Europe and tightening
credit markets could trump the global economic recovery.

This correction was the first 10 percent decline (the
technical definition for a correction) since the market rally
began in March 2009.

“A 15 percent correction is painful but healthy and the
primary trend in my opinion remains higher,” said Richard Ross,
global technical strategist at Auerbach Grayson in New York.

“I think this is the beginning of a strong summer rally.”

Stocks rebounded from a low of 1040.78 on Tuesday but met
resistance at the 1090 level. This level’s an important one –
it’s viewed as technical resistance as it marks the 23.6
Fibonacci retracement of the index’s advance from March 2009 to
April 2010.

The Fibonacci retracement is a widely used technical tool
used to determine points that could predict a change in
direction of an asset price.

“Short-term that’s probably a level that traders are
sitting on, trying to play that from the short side,” said
Ross.

A more significant point of resistance would be the 200-day
moving average, which now stands right around 1,104.

To be sure, market psyche remains frayed, as investors have
been quick to sell rallies, which is what happened Wednesday,
when shares fell in the wake of reports that China was looking
to reduce its euro debt holdings.

“Everything is looking a little better, (but) we are not
out of the woods technically,” said Richard Sparks, senior
equities analyst at Schaeffer’s Investment Research in
Cincinnati, Ohio.

The 200-day simple moving average, breached last week on a
closing basis for the first time in more than 10 months, is
widely eyed as an inflection point. Should stocks continue to
rally, it could indicate the S&P is ready to add to the
14-month rally.

“I don’t think the factors that were driving the market two
months ago have changed, despite the crisis that’s gripped
Europe,” Ross said.

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(Additional reporting by Chuck Mikolajczak)

S&P 500 in line for summer rally if levels hold