Despite the well-known and often prophetic “sell in May and go away” market adage, Ari Wald, Technical Analyst at Oppenheimer, remains optimistic for the S&P.
Wald’s main reason is that while the S&P 500 has been making lower highs since January, the Russell 3000 Advance-Decline line (a cumulative measure of advancing stocks net of declining stocks) has made higher highs (see Chart). He says this shows more stocks have advanced during market rallies than stocks have fallen during market declines. Wald sees such an incremental improvement in breadth as bullish for active selection (because the average stock is outperforming the market) as well as bullish for the overall market (because breadth typically narrows at a top).
However, Wald says the seasonal backdrop (i.e. “sell in May” / summer weakness) means there won’t be runaway strength. In terms of levels he sees significant near-term support at 2,610 and expects a relief rally towards the 2,800-2,900 area of resistance.