S&P 500 Tops 50-Day Moving Average in Bullish Sign

By Elizabeth Stanton and Eric Martin

Dec. 17 (Bloomberg) -- The U.S. stock rally spurred yesterday by the Federal Reserve’s rate cut pushed the Standard & Poor’s 500 Index above its average level during the past 50 days, a signal to some traders that the advance will continue.

The benchmark index for American equities surged 5.1 percent to 913.18, exceeding its so-called 50-day moving average for the first time since Sept. 3. That’s the longest stretch since August 2002, according to data compiled by Bespoke Investment Group LLC. The figure was surpassed again today.

The S&P 500 spent most of the year trading for less than the moving average as it plunged 38 percent. The index jumped 20 percent since sinking to an 11-year low on Nov. 20, driven by President-elect Barack Obama’s economic stimulus plan that may reach $600 billion and the Fed cutting its benchmark lending rate to a record low. Surpassing the 50-day average may be a sign investors are less concerned the S&P 500 will give up its gains.

“It’s a positive point, and short-term-trading people will use it as a buy signal,” said Mary Ann Bartels, chief market analyst at Merrill Lynch & Co. in New York and the second-ranked technical analyst in Institutional Investor magazine’s 2008 survey. “It’s another sign that the market is improving.”

To some technical analysts, who study charts to make price predictions, surpassing a moving average suggests a majority of investors have turned bullish.

‘All Available Tools’

The S&P 500 jumped the most since Nov. 24 yesterday after the Fed lowered its target for the overnight lending rate between banks to a range of zero to 0.25 percent and said it will employ “all available tools” to revive economic growth. The closing level of 913.18 was 1.2 percent higher than the 50-day average of 902.37. Today, the index dropped to 904.42, which is 0.4 percent higher than the new 50-day moving average of 900.53.

Should the S&P 500 reach 1,007.51, its intraday peak on Nov. 4, it would probably surge another 19 percent to 1,200, Bartels said. A failure to break through that point would increase the likelihood of a plunge below 741.02, the 11-year low reached on Nov. 21, she added.

Among the companies in the S&P 500, 269 closed above their 50-day moving average yesterday, according to Bloomberg data. They included Google Inc., International Business Machines Corp. and Colgate-Palmolive Co., which had closed below on Dec. 15.

Yesterday marked the end of the 18th period in which the S&P 500 stayed under the 50-day moving average for at least 67 days, according Harrison, New York-based Bespoke. In prior occasions, it gained 1.7 percent, 4.4 percent and 3.5 percent on average during the ensuing week, month and half year, respectively. Over the three-month span, it lost 0.3 percent on average.

“It’s good,” Roger Volz, senior vice president at Hampton Securities Inc. in New York and a technical analyst since 1982, said of the S&P 500’s close above its 50-day moving average. “It’s a marking gauge for the condition of the charts and the probability we see a continuation in direction.”

To contact the reporters on this story: Elizabeth Stanton in New York at estanton@bloomberg.net; Eric Martin in New York at emartin21@bloomberg.net.