Bloomberg News

S&P 500 Capped By 200-Day Moving Average: Technical Analysis

November 09, 2011

Nov. 9 (Bloomberg) -- The Standard & Poor’s 500 Index may halt its biggest gain in 20 years, according to two indicators studied by technical analysts at UBS AG.

October’s 11 percent rally, which was the biggest monthly advance since 1991, failed to leave the S&P 500 above its 200- day average, limiting the potential for a rally, the Zurich- based analysts wrote in a report yesterday. The team also said their model for moving average convergence-divergence, or MACD, is heading into “bear mode.”

“We see the risk of more near-term weakness into next week,” Marc Muller and Michael Riesner wrote in the report. “Given the high volatility, we would see a pullback into next week still as a trading opportunity for aggressive traders, whereas, on the upside, we wouldn’t chase the market.”

The S&P 500 climbed 1.2 percent to 1,275.92 yesterday as Italian Prime Minister Silvio Berlusconi’s offer to resign boosted optimism the nation will appoint a new leader who can tame the debt crisis. Futures on the benchmark index expiring in December slid 1.6 percent to 1,253.4 at 9:43 a.m. in London today, indicating the measure will fall back below the 200-day moving average of 1,272.97.

The equities gauge slid 2.5 percent last week, snapping a four-week rally, as Greek Prime Minister George Papandreou called and then abandoned a referendum on the country’s latest bailout from the euro area and global leaders failed to agree to increase the International Monetary Fund’s resources.

The S&P 500 is trading at 12.9 times the estimated earnings of its companies, below the average multiple of 14.5 over the past five years, Bloomberg data show. Earnings at 72 percent of S&P 500 companies that have reported results since Oct. 11 have exceeded analysts estimates.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security.

--Editors: Will Hadfield, Andrew Rummer

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net.

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net


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