S&P 500 index: Bear market rally to top out at 4,050?The S&P 500 ( US 500 ) has experienced a remarkable 15% rally since its lows on October 13. This was the second bear market rally in 2022, after the US stock market officially entered a bear market in May.
If we are currently undergoing a two-month bear market rally similar to the one saw last summer, the S&P 500 index is expected to peak at about 4,050 points on December 13.
On that day, the US will release its November CPI inflation figures, and the Federal Reserve will meet just one day later.
Technically, the index is trading near the 4,000-point psychological barrier, which also corresponds to the 38.2% Fibonacci retracement level from the lows to the highs of 2022. The 200-day moving average is located just above this level at 4,076 points right now and may shortly follow the path of the 2022 bearish trendline.
This multi-resistance zone between the critical 4,000 and 4,050/60 marks could be a significant technical hurdle for the S&P 500, where bulls may struggle to move further.
Two possible outcomes could follow, depending on whether the S&P 500 breaks through this significant resistance area or not.
1) Head-and-shoulders pattern with SPX heading towards 3,500
If the bear market rally peaks at 4,050 in December, the price action will have formed the right shoulder of a head-and-shoulders pattern, which depicts the S&P 500 index falling below the neckline at 3,500 points by the end of 2022 or the start of the next year.
2) Breakout and extension towards August highs
Alternatively, a breakout of the multi-resistance zone around 4,050 may occur if US inflation continues to decline and the Federal Reserve adopts a less hawkish approach in December.
In that case, the index might extend its gains toward 4,156, which represents 50% of the Fibonacci retracement, and possibly test the August highs at 4,323, which would complete 61.8% of the retracement.
