The Second Half of the S&P 500's Chart and What It Indicates

Insights from the S&P 500's Performance in the First Half of the Year

The S&P 500 recently completed its third consecutive quarter of gains, marking its sixth quarterly rise in the past seven quarters. The last time the index saw a longer winning streak was from the second quarter of 2020 through the fourth quarter of 2021, which spanned seven straight quarters of growth. This was notable, though it still pales in comparison to the remarkable run from the first quarter of 1995 through the second quarter of 1998, where the S&P 500 enjoyed 14 consecutive quarters of gains. These historical streaks illustrate how market trends can sometimes persist far longer than anticipated.

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Some market analysts draw parallels between the current surge in technology stocks and the tech boom of the late 1990s. However, opinions differ on the current stage of this surge. Some believe we are in the early phases, while others think the rally is nearing its end.

Four Key Factors to Watch

While opinions on market stages vary, the market itself ultimately reveals the truth through its trends and patterns. In the first half of 2024, four key factors have emerged as crucial indicators to monitor for the remainder of the year:

1. Successful Bullish Patterns

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Recent discussions have highlighted the S&P 500's robust performance in the first six months of the year, but the focus here is on successful chart patterns:

• Number of successful chart patterns:
  • Bullish: 7
  • Bearish: 0

Although this data extends back to November 2023, it's noteworthy that five of the seven bullish targets were achieved in 2024. The index's technical outlook will remain favorable as long as bullish patterns continue to prevail and bearish patterns fail to materialize.

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2. Sector Rotation

While the largest stocks have significantly influenced the S&P 500's year-to-date performance, 292 stocks within the index (58%) have posted gains. Among these, 116 stocks have outperformed the S&P 500's 14.8% increase as of July 1, 2024.

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Interestingly, some of the strongest breadth days in 2024 occurred on days when the technology sector lagged. Since the start of the second quarter, technology has been the worst-performing sector on ten occasions. However, during these days, the S&P 500 experienced positive breadth 70% of the time. Given technology's substantial 32% weighting in the index, it needs to remain a leader for continued overall market advancement. However, during periods of tech underperformance, other sectors must compensate to sustain the market's upward momentum.

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3. Low Two-Way Volatility

A key indicator of market stability has been the low two-way volatility, as evidenced by the following data:

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• First six months of 2024:
  • 15 days with 1% gains
  • 7 days with 1% losses

For context, in the first half of 2023, the index had 26 days with 1% gains and 16 days with 1% losses. In the first half of 2022, there were 30 days with 1% gains and 37 days with 1% losses. The reduced volatility in 2024 has supported the continuation of bullish patterns.

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4. Strong Closes

The S&P 500 closed above its intra-day midpoint on 77 out of 125 trading days through the first half of the year, translating to a 62% win rate. While not extreme, this figure includes a period from March 1 through April 19, when the index closed above its midpoint only 41% of the time. Since then, the closing rate has improved to nearly 70%.

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This phenomenon indicates institutional bullishness, as major investors continue buying throughout the trading day, pushing prices higher and resulting in strong closes. Sustained buying and strong closes are foundational to creating and maintaining an uptrend.

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Outlook for the Second Half of the Year

These four factors—successful bullish patterns, sector rotation, low two-way volatility, and strong closes—are essential technical indicators that have driven the market's performance in the first half of 2024. If these trends persist, the second half of the year could mirror the gains seen in the first half, offering potential for continued growth in the S&P 500.

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Market participants should closely monitor these indicators as they provide critical insights into the market's direction and the potential for further gains.

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