How much longer can this rally last? That’s the million dollar question (or trillion dollar question).

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Bank of America, Merrill Lynch’s technical research analyst Stephen Suttmeler and team, believe that investors may be pleasantly surprised by this rally’s longevity.

Bank of America
Photo by PredragKezic (Pixabay)

Bill Gross Says End Of Historic Bull Market Is Near

How much longer can this S&P 500 rally last?

The S&P 500 is up over 19% from the mid-February low, and many investors have become scared of this rally as global economic headwinds grow. However, according to the team at Bank of America, there is evidence to suggest that the S&P 500 can continue to rally for the rest of the year. Specifically, the team writes:

“The S&P 500 has had 96 rallies in excess of 10%, without a 10% drop, going back to 1928 with an average gain of 34.07% (21.52% median) and an average length of 7.8 months (2.7 median). Projecting the median and average returns off the February low puts S&P 500 near 2220 and into the 2400-handle, respectively. 2220 coincides with our tactical 2225 projection. The 2400- handle is consistent with recent cyclical and secular breakouts.”

Furthermore, the S&P 500 is still in the cyclical bull market that started in 2009, and the technical team’s analysis shows that even if this is the last hurrah of a dying bull market, there’s still room to run from the February low:

“Rallies in excess of 10% within cyclical bull markets tend to be stronger. The average cyclical bull market rally of 10% or more is 44.31% (30.61% median) and lasts 11.1 months on average (6.1 month median). The median return would put the S&P 500 near 2400, which is consistent with projections from the July’s cyclical breakout… Even if the current rally in excess of 10% from the February low is the last one of the cyclical bull market from 2009, there should more room to run. The average rally of at least 10% that is the last rally of cyclical bull trend (but not the only rally of the cyclical bull) has an average return of 46.88% (median of 30.97%) and an average length of 13.1 months (8.6 month median).”

Only time will tell if this technical analysis has any weight behind it but with macro headwinds growing and investors becoming increasingly cautious about the outlook for the market, it’s difficult to follow technical trends.

Rob Arnott: Asset Allocation And The Dark Side Of Bull Markets

There’s plenty of analysis out there which shows that technical analysis doesn’t work are fundamental investors tend to avoid using such analysis to underscore investment decisions. Simply put, Bank of America’s technical analysis team may believe this rally has further to run, but most fundamental investors have a different opinion.

BoA tech 1
How much longer can this S&P 500 rally last?