S&P 500 Moving Averages Show ‘Fierce’ Rally: Technical Analysis

By Michael Patterson

Sept. 9 (Bloomberg) -- A rise in the Standard & Poor’s 500 Index’s five-month moving average above its 15-month moving average for the first time since 2003 signals stocks are in the early stages of a bull market, said Alexander Associates LLP.

The S&P 500’s five-month moving average climbed to 974.39 yesterday, higher than the 15-month moving average of 972.56, according to data compiled by Bloomberg.

The five-month moving average rose above the 15-month line three other times in the past two decades: March 1991, October 1994 and July 2003. Each cross foreshadowed returns of at least 16 percent during the following 18 months.

“Every time you see these two cross, it signifies a major event,” said Anthony Hughes, a London-based investment manager at Alexander Associates. “It confirms the shift in market sentiment.”

The S&P 500 has returned 53 percent since March 9, when it closed at a 12-year low, as second-quarter earnings topped analysts’ estimates and a rebound in manufacturing and home sales signaled the economy is recovering from its worst recession since the 1930s. The rally compares with a 121 percent return during the last major bull market, from Oct. 9, 2002, to Oct. 9, 2007.

The S&P 500’s monthly moving average convergence/divergence line is another bullish sign for the market, according to Hughes. The so-called MACD rose above its signal line in July, indicating that the index is poised to climb, Hughes said. Technical analysts study chart patterns to predict prices.

“It starts to build a very strong case for a fierce bull rally,” Hughes said. Money managers “see the stars aligning.”

To contact the reporter on this story: Michael Patterson in London at mpatterson10@bloomberg.net.