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Bank of America Technicals Point to Corrective Third Quarter for S&P 500
According to a recent note from Bank of America, technical analysis of the S&P 500 suggests a "corrective" bias for the third quarter. Analyst Paul Ciana stated that the market uptrend that began in early April lost momentum and became range-bound in late May, a view the bank says was validated by a 5% pullback in the first half of June.
The bearish argument, as outlined by BofA, points to signs of an exhausted uptrend, a "diamond top" chart pattern, and weaker momentum. The analysis also cites historically defensive seasonal trends for the third quarter in the second year of a U.S. Presidential Cycle. Bears are reportedly watching for a potential correction that could target levels of 7,122 and 6,968.
Conversely, the bullish case suggests the market may be undergoing a "correction-through-time" via a triangle continuation pattern, which could lead to a summer rally. Positive signs for bulls include improving market breadth, with the percentage of stocks trading above their 200-day moving averages rising to 68% and the Advance-Decline Line reaching a new high. Despite these points, BofA reiterated that its bias for the quarter remains corrective.
AdThe BofA note also touched on other markets. Analysts see U.S. 10-year yields continuing an uptrend toward 4.65%, while remaining bearish on the Euro against the U.S. dollar. In commodities, BofA noted that an oversold rebound in Brent crude oil may be starting, potentially establishing a new trading range between $65 and $85 per barrel.