U.S. stock exchange traded funds have been trapped inside a relatively narrow range since the big summer drop. However, a rally and a break above the 50-day moving average for the S&P 500 on Monday lifted hopes that equity ETFs will escape the range to the upside.

“The S&P 500 continues to trade its range of the past ten weeks. Today is seeing a move into the upper half of that range and more importantly a test of the 50-day exponential moving average,” said Tarquin Coe in an Investors Intelligence newsletter Monday. “Previous tests of this average in August and September were followed by the index reversing to the downside so it’ll be telling to see where the index stands at the close.”

The iShares S&P 500 (NYSEArca: IVV) was up nearly 3% in afternoon trading Monday. [S&P 500 ETFs Rally Above 50-Day Moving Average]

“With the index still range-bound and given the fact that the general trend since the start of May has been down we remain cautious equities,” wrote Coe, a technical analyst.

He’s also waiting to see improved performance in the key financial sector.

“Despite the European’s pledge to ensure adequate capital to European banks the financial stocks are not soaring. Yes, Financial Select Sector SPDR Fund (NYSEArca: XLF) was up by as much as 4% earlier today but critically it has not broken Friday’s high. Also a clear falling channel for the past six weeks remains underway,” the analyst wrote. “The sector also holds the relative downtrend of the past year. Until this sector turns around on a relative basis we would be wary of any rallies.”

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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