In-house Research: Is the current uptrend in the S&P 500 sustainable?

Research analyst Anthony Grech offers in-depth analysis into a range of topics so you can improve your knowledge of the financial markets. These free topical reports, accessible to account-holders only, track the historic performance of various markets.

Here's a summary of our latest report on the S&P 500. You can access the full version in the TradeSense Databank found in the PureDeal platform. See other research articles by Anthony Grech.

S&P 500: Is the current uptrend sustainable?

The recent subprime induced downturn has been more destructive than the previous one, suggesting that future economic growth is likely to be more subdued than before. Yet, we have already seen the S&P 500 rally 40% since its March trough.

Are we already in a bull market or are current gains unsustainable?

Current gains

Recent trading levels on the S&P 500 bear a strong resemblance to trading levels that were seen at the bottom of the dotcom bear market.

An observation of the stock market recovery following the dotcom downturn reveals that the S&P 500 moved into a long-term cyclical bull market only after garnering enough momentum to rally past the 950 level. It was only after two unsuccessful attempts that the index managed to break through this level.

Similarly, the S&P 500 tried to rally past 950 on two different occasions during the current downturn, but failed to maintain gains both times due to a lack of upside momentum.

This may have something to do with the fragile state of economic fundamentals prevailing across the globe in general, and in the US in particular, that may not yet be strong enough to support a cyclical bull market.

This report provides interesting observations that lead to the conclusion that the current rebound in the S&P 500 has been too aggressive and is likely to undergo a phase of consolidation.

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