Oct. 27 (Bloomberg) -- The Standard & Poor’s 500 Index halted a three-week rally at “triple resistance” near 1,257 and investors should avoid buying stocks before an “overbought” condition eases, Instinet Group Inc. said.
The 1,257 level is close to where the benchmark measure for U.S. equities finished at the end of 2010 and bottomed in March amid Japan’s worst earthquake and nuclear crisis, and it also represents a 61.8 percent retracement of its entire loss from the 2011 peak to trough, according to a note co-written by John Schlitz, Instinet’s chief U.S. market technician.
The rally that lifted the index as much as 17 percent from this year’s low has pushed its stochastic reading, a measure of market momentum, above 70, a threshold indicating stocks have risen too far, too fast, Bloomberg data showed.
“It’s probably best to allow the indexes to set up constructively prior to increasing long exposure,” Schlitz wrote in the note Oct. 25. Following this month’s advance, “that would typically be something like a higher volume flush- out move back towards 1,180-1,190, but unfortunately -- at this stage at least -- it all depends on earnings and Europe.”
The S&P 500 has fluctuated between 1,074.77 and 1,256.55 since Aug. 4 as investors weigh concern over Europe’s debt crisis against optimism about corporate earnings. The gauge rose from the threshold of a bear market early this month after European leaders took steps to support banks. About three- quarters of the S&P 500 companies that reported results since Oct. 11 beat analysts’ earnings projections, according to data compiled by Bloomberg.
Technical analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index.
--Editors: Joanna Ossinger, Stephen Kleege
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