S&P 500 ETFs Battle Key Resistance After 18% Rally

October 19th at 10:24am by John Spence

Few investors seem to truly believe in the rally amid lingering concerns over Europe’s debt crisis, a lackluster economic jobs market recovery, and the looming U.S. fiscal cliff. However, the fact remains the S&P 500 has gained 18% this year.

SPDR S&P 500 (NYSEArca: SPY) has posted a total return of 17.9% so far in 2012, according to Morningstar. In fact, the blue-chip stock index has more than doubled from the 2009 low of 666.

Still, the S&P 500 has to overcome a key resistance line before investors can get excited about a potential run to all-time highs.

“Stock market action since 2000 has been extremely volatile with two massive bear markets each being followed by a strong recovery rally,” according to ChartOfTheDay.com.

“It is interesting to note that both of these bear market rallies are somewhat similar in form (i.e. strong first-year rally followed by a more moderate rally in succeeding years),” according to a note Friday. “As for the current state of the market, the S&P 500 continues to trade within the confines of its three-year uptrend but is currently testing resistance.”

Indeed, stepping back to look at the long-term charts shows a U.S. stock market that has been seeing shorter rallies. [S&P 500 ETFs Look 'Tired' as Rallies Diminsh]

Yet from a valuation standpoint, the S&P 500 is actually trading below its long-term price-to-earnings average. [Vanguard CIO: We're in a Long-Term Bull Market]

S&P 500

SPDR S&P 500

Full disclosure: Tom Lydon’s clients own SPY.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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