S&P 500 Drop Limited After ‘Breadth Thrust’: Technical Analysis

(Bloomberg) -- Any decline in the Standard & Poor’s 500 Index after a 49 percent rally from this year’s low may be “limited” as the surge triggered a so-called breadth thrust, technical analysts at Bank of America Corp. said.

A breadth thrust, which occurs when there’s a sharp move in a ratio based on a moving average of the number of advancing stocks in an index, indicates that a broad swathe of stocks have participated in the advance, according to analysts who use charts to predict price movements.

The S&P 500 increased to the highest level since October on Aug. 7, completing a four-week gain after better-than-estimated earnings at companies from Goldman Sachs Group Inc. to Johnson & Johnson and stabilizing economic data boosted confidence the worst of the recession is ending. The benchmark index for U.S. equities may retreat by a “modest” 15 percent to 20 percent after the rally ends, analysts Mary Ann Bartels and Stephen Suttmeier wrote in a report today.

“Based on prior periods, corrections should be limited after a breadth thrust,” the analysts wrote. “We are expecting a fall correction, but we view a correction as part of the basebuilding process.”