(Bloomberg) -- The Standard & Poor’s 500 Index recouped half its bear-market loss, pushing for a second time to a level that might herald more gains, according to some analysts who follow the Fibonacci system of forecasting prices.
The benchmark for U.S. stocks surpassed 1,120.84, the 50 percent retracement of its slump from 2007 to 2009, and is up 0.5 percent to 1,124.29 as of 11:42 a.m. in New York. After reclaiming the level for the first time in December and failing to stay above it in January, the index is back to a point that represents “heavy resistance” for the market, RBC Capital Markets Corp.’s New York-based analyst Robert Sluymer said.
“There is a significant amount of technical resistance between current levels and the January highs,” Sluymer, managing director of U.S. technical research at the Royal Bank of Canada unit, said in an interview. “It would not be surprising to see the markets churn around current levels.”
Many analysts who use historical charts and trading patterns to predict the direction of a security say that after a major decline, some levels of resistance on the way back up are based on the Fibonacci number sequence described by Leonardo of Pisa in “Liber Abaci” in 1202. Those include the points when a stock or index wins back 50 percent of its initial losses, and when it recoups 61.8 percent.
The S&P 500 sank to 676.53 on March 9 from a record high of 1,565.15 on Oct. 9, 2007, amid the financial crisis that began with defaults on subprime mortgages and accelerated when New York-based Lehman Brothers Holdings Inc. filed the world’s biggest bankruptcy in September 2008. The index started recovering 12 months ago and has since climbed 66 percent after the economy returned to growth following a yearlong contraction.
61.8 Percent Retracement
An increase in the S&P 500 to the 61.8 percent Fibonacci retracement would put the index at 1,225.70. That’s 9.6 percent above yesterday’s close, but short of the average year-end forecast of 1,232 by 13 strategists surveyed by Bloomberg.
Carter Worth, Oppenheimer & Co.’s chief market technician, said the 50 percent Fibonacci level is no longer relevant because it was breached in December.
“Once you’ve met the objective, it’s like crossing over a goalpost in your personal life. It doesn’t keep coming back as an objective,” he said. “That’s come and gone.”
The S&P 500 has dropped 2.3 percent from its January high as widening budget gaps in Greece, Spain and Portugal sparked concern Europe will sink into another recession. The index today rose for a fourth-straight day amid more takeover bids and reports showing the employment market and service industries are improving.
Should the S&P 500 sustain its gain above the 50 percent level, it would send a bullish signal to the market, said Dan Wantrobski, Philadelphia-based director of technical research at Janney Montgomery Scott LLC.
“If we were to break north here, the market is giving us resolution,” Wantrobski said. “That’s the tape telling us it’s kind of making up its mind.”
Russian economist Nikolai Kondratiev (also written Kondratieff) has graphed what are now called "Supercycles, surges, long waves or K-waves." Introduced in 1925 in his book, The Major Economic Cycles, he thinks international economies fluctuate in 40 to 60 year cycles.
