S&P 500 May Gain 7% After Breaching 1,150: Technical Analysis

March 15 (Bloomberg) -- The Standard & Poor’s 500 Index may climb as much as 7 percent after breaching the 1,150 level last week, according to technical analysts at BofA Merrill Lynch Global Research.

“Positive to overbought short-term indicators are confirming the rally off the 5 February low,” New York-based Mary Ann Bartels and Stephen Suttmeier wrote in a report today. The S&P 500 may advance to a range of 1,220-1,230, which coincides with the 61.8 percent Fibonacci retracement of the drop from October 2007 to March 2009 and the “objective” of a recently completed so-called head-and-shoulders bottom pattern, the analysts wrote.

The benchmark gauge for U.S. stocks climbed 1 percent to 1,149.99 last week. The index closed at 1,150.24 on March 11, the highest level since October 2008, after reaching this year’s intraday low of 1,044.5 on Feb. 5.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security, commodity, currency or index. A head-and-shoulders bottom is formed when price movements in a security form three troughs, the middle of which is the deepest. The line that unites the peaks between the troughs is known as the neckline.

Fibonacci analysis is based on a formula developed by 13th century mathematician Leonardo da Pisa, known as Fibonacci, who discovered the sequence while studying the reproduction rate of rabbits. Analysts use the indicator to determine levels where buy and sell orders may be clustered. Fibonacci ratios include 23.6, 38.2, 50, 61.8 and 76.4 percent moves.