The S&P 500 index has staged a strong recovery this month as investors reflect on the ongoing quarterly earnings season. It rose to a high of $3,800, which was the highest level since October 6 of this year. Similarly, the SPY ETF, which tracks the index has risen by almost 10% from its lowest level this year. So, is the S&P 500 index a buy?
Key earnings ahead
The S&P 500 index rallied last week as investors reflected on the latest quarterly earnings by companies like Bank of America, Johnson & Johnson, and Goldman Sachs. In all, 20% of all companies in the S&P 500 have published their results so far.
72% of these companies have published a positive EPS surprise while 70% have published a positive revenue surprise. According to FactSet, only 9 companies in the index have published negative EPS guidance.
The earnings season will continue this week with key catalysts being European banks and American tech giants. In Europe, the key bank that will move the market is Credit Suisse, which will publish its results and strategy on Thursday. American tech companies like Apple, Microsoft, and Meta Platforms will publish their results as well.
Meanwhile, the SPY ETF and S&P 500 have become incredibly cheap recently. The PE ratio has dropped to 20.84, which is the lowest it has been since September 2019. It is also significantly lower than its 2020 high of 38.23.
S&P 500 forecast
The four-hour chart shows that the S&P 500 index has staged a strong comeback. This recovery was helped by the company’s earnings and signs of of a Fed pivot. It has managed to move above the key level at $3,633, which was the lower side of the inverted cup and handle pattern. The index has also risen above the 50-day moving average while the RSI has rallied close to its overbought level.
Therefore, because of the inverted C&H pattern, there is a likelihood that it will resume the bearish trend in the near term. This view will be confirmed if it moves below the support at $3,633. A move above $4,000 will signal that bulls have prevailed and invalidate the bearish view.