S&P: 1,600 will be critical

Is 1,600 the new equilibrium / fair value level for the S&P 500? Peter Lee, Chief Technical Strategist at UBS in New York, suggests it might be and looks at how this level may prove crucial in deciding when we enter into the next structural bull trend or if we are already in it.

1,600 is the level at which the S&P broke out in May 2013 and Lee speculates on two scenarios based on this level (see Chart 1). Scenario 1 says the May 2013 breakout near 1,600 will be tested in the next few years and successfully held, thereby confirming a structural bull trend. Scenario 2 says the 1,600 level will fail, thereby suggesting a cyclical bear decline.

In Chart 2, Lee shows that the S&P has consistently alternated between periods of long-term bullishness via secular bull trends and periods of long-term bear trends / trading ranges. If Scenario 1 transpires, Lee says it will confirm we are in a secular bull market that began in May 2013. If Scenario 2 transpires, the onset of the next structural bull trend will be delayed.

See Chart 1 and Chart 2.

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