With a rise of just over 21%, the largest U.S. companies, such as those that comprise the S&P 500 index, have had a strong performance so far in 2019. As you've probably heard, over the past several days, the popular benchmark of the U.S. financial market has reached new highs, capturing its fair share of attention from active traders and long-term investors alike. In this article, we'll analyze three charts suggesting that the move is not nearly over and that prices could be geared for a sharp move higher by the end of 2019.
SPDR S&P 500 ETF (SPY)
Talk of a pending interest rate cut by the Federal reserve, heightened optimism around the terms of a U.S.-China trade deal, and strong corporate earnings are a few of the factors fueling a rise in investor confidence. Taking a look at the chart of the SPDR S&P 500 ETF (SPY), which is the most popular fund used to track large-cap U.S. equities, you'll notice that a well-defined ascending triangle pattern has formed on the chart.
This bullish chart pattern is found during periods of consolidation, and breakouts such as the one shown by the blue circle are common signals used by followers of technical analysis to mark the next leg of a move higher. Given the height of the pattern, active traders will likely set their target prices near $333. From a risk-management perspective, stop-loss orders will most likely be set below $285.68 in case of a sudden shift in fundamentals.
Microsoft Corporation (MSFT)
Traders looking for specific large-cap stocks to trade will often look to the top holdings of popular funds such as SPY. In the case of the SPY ETF, the top holding, with a weight of 4.36%, is Microsoft Corporation (MSFT). As you can see below, the pattern looks nearly identical to the broader fund mentioned above, and it will likely be interpreted the same way when it comes to placing buy and stop orders.
More specifically, in this case, buy orders will be likely placed near current levels, while stops will be placed below the ascending trendline or the 200-day moving average, depending on risk tolerance and time horizon. Target prices will likely be set near $160.
Facebook, Inc. (FB)
Another interesting triangle pattern forming for a top holding of the SPY ETF is shown on the chart of Facebook, Inc. (FB) below. This pattern will likely be of specific interest to active traders because the 200-day moving average (red line) has propped up the price on several attempted pullbacks over the past several months.
The recent bounce off of the support combined with the break beyond the resistance of the triangle suggests that the bulls are in control of the momentum. Active traders will also likely look to the bullish crossover between the moving average convergence divergence (MACD) and its signal line as confirmation of the move, and many will look to protect against a sudden shift in sentiment by placing stop-loss orders below $179.87.
The Bottom Linein
With a gain of over 20% so far in 2019, U.S. large caps have had an outstanding year. With that said, based on the patterns discussed above, it doesn't look as through the momentum is about to change course any time soon. Active traders will likely continue to keep an eye on the trendlines mentioned above and in turn anticipate strong performance over the final couple of months of 2019.
At the time of writing, Casey Murphy did not own a position in any of the assets mentioned.