Deeply oversold indicators suggest a relief rally is imminent for the S&P, according to Ari Wald, Technical Analyst at Oppenheimer.
Wald thinks the 1965 to 2000 range will be a near-term trading objective for the S&P 500 because the index’s 50-day moving average as well as key retracement levels (of the decline since October) converge at these levels. As such, he recommends selling into 1965 in anticipation of a subsequent decline into his medium-term 1740 correction target. See Chart 1.
Wald, however, urges caution before thinking the secular bull market has resumed. At the moment, less than 20% of NYSE stocks are above their 200-day moving average, which is a deeply oversold reading that supports a relief rally, but he believes “overall caution remains warranted until the measure reaches 70%. Such an indication of internal strength is needed to confirm a resumption of the secular bull… like it did in 1995, 2003, 2009, and 2012.” See Chart 2.