Long-term bullish targets are still in play for the S&P 500 though it may be overextended in the short-term, according to Frank Cappelleri, Chief Market Technician at Instinet.
Cappelleri stresses that targets do not expire just because they take a while to achieve. In fact, he says the mid-May breakout remains in play even now (Chart 1) and has continued to provide a foundation for other bullish patterns over the last few months.
However, he thinks the index may need some additional time to catch its breath before breaking through the September highs. The current trading range is both longer and wider than the previous two (Chart 2), which Cappelleri says gives it more room for corrections. Not by coincidence, the strong bounce of the last few weeks has produced the first Demark Sell Signal in the S&P since late August (Chart 3). He says these typically do not pinpoint exact turning points, but they do a good job of detecting short-term buying (and selling) exhaustion.
If the pullback happens soon, Cappelleri says the key will be seeing if higher lows result once again.