The SPDR S&P 500 ETF Trust (NYSE:SPY) kicked off the month of October with back-to-back monster days, bouncing off of new 2022 lows in late September. In fact, the stock market just did something it hasn't done since 2013, and it could be a bullish sign for investors.
The Numbers: On Wednesday, Bank of America analyst Stephen Suttmeier said 90% of all NYSE stocks traded higher on both Monday and Tuesday of this week. The last time the NYSE had back-to-back 90% up days was Dec. 31, 2012, and Jan. 2, 2013. Suttmeier pointed out the S&P 500 went on to gain an impressive 29.6% in 2013 following that two-day rally.
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In addition, the S&P 500 may also have some seasonal momentum ahead as well. First, the market has moved past the month of September, which has historically been the worst month of the year for stocks. In addition, Suttmeier said the fourth quarter in a U.S. midterm election year through the first half of the following year has historically been the strongest part of the U.S. presidential election cycle for stocks.
What's Next? Since 2005, the S&P 500 has averaged a 5.5% return in the 65 days following back-to-back 90% up days. Suttmeier said the rally on Monday and Tuesday puts bears in a difficult position.
"The two NYSE 90% up days set up a failed breakdown (aka bear trap) below the June low of 3636 and completed a 7-day bullish island bottom on the gaps from 9/23 and 10/4," he said.
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The S&P 500 opened down 0.9% on Wednesday morning, but Suttmeier said the index may have solid technical support in place for now. He said the June and September lows of 3636 and 3585 along with the 200-week moving average of 3595 will all serve as support levels as Wall Street approaches a critical third-quarter earnings season.
Benzinga's Take: The technical support is great, but the medium-term outlook for the S&P 500 will be all about inflation, interest rates and earnings. As long as interest rates continue to rise, it will be extremely difficult for earnings and stocks to gain much traction.
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