Investing.com -- A significant bullish pattern is emerging in the S&P 500, potentially setting the stage for a sharp move above the 6000 threshold, Bank of America’s latest technical analysis reveals.
According to BofA, a “cup and handle” pattern has been developing since mid-July, supported by solid market breadth and key technical levels. This pattern is often seen as a precursor to a breakout in stock prices.
BofA’s note highlights the key resistance zone between 5650 and 5670. A decisive break above these levels, which represent the highs from August and July, would confirm the cup and handle pattern.
Such a breakout would “favor more upside to 5930 (measured move) and 6180 (pattern count),” BofA highlights in its analysis.
This bullish outlook is further reinforced by strong market breadth indicators. BofA points to advances in various sectors, with the advance-decline (A-D) lines for both the and Nasdaq 100 hitting new highs, offering “a bullish leading indicator for new highs for the major US equity indices.”
“Strong A-D lines show solid market breadth to suggest a "rotational" versus "toppy" trading pattern since July and that weakness is "seasonal" and not "structural",” the bank notes.
However, the analysis also warns of the seasonal risks in late September. Historically, this period has been one of the weakest for the SPX, with returns down 60% of the time over the last 10 sessions of the month.
September in presidential election years has traditionally also been a challenging period for the S&P 500. During the first 10 trading sessions, the index has historically been down 54% of the time, with average and median losses of -0.42% and -0.38%, respectively.
While the last 10 sessions of September are typically less weak in these years, the SPX still shows a decline 54% of the time, with a median loss of -0.05%.
The benchmark index closed 0.13% higher on Monday, while the Nasdaq 100 fell around 0.5% amid pressure on tech stocks.