Stephen Suttmeier's Short & Long-Term S&P 500 Outlook

Stephen Suttmeier, Chief Equity Technical Strategist at Bank of America Merrill Lynch, was on CNBC 'Futures Now' with Seema Mody Friday after market close discussing his thoughts on the long-term trend and short-term support and resistance levels in the S&P 500.

Stephen begins by stating that the S&P 500 is in an overall secular bull market that has experienced a cyclical correction. He is using 2 moving averages to help guide his analysis: the 200-week and 40-week. The 200-week moving average "is rising and that's your secular bull trend. The 40-week moving average shows the cyclical correction." It is important to note that the 200-day moving average is also the same as the 40-week.

In December 2018, the market pulled back to the 200-week moving average and bounced. Mr. Suttmeier notes this area tends to provide support in cyclical bear market corrections, but does not mean we are going to go straight up next. His key for 2019 is for price action to get through the 40-week moving average, which trades at about the 2,740 level. Stephen continues by saying "we believe the market is in a good position. We are not ruling out that we can't back-and-fill here, but many people are debating a retest of the December lows. My guess is we form a higher low. We have plenty of support between 2,530 and 2,600. If we hold above 2,600-2570, the trend near-term is to grind higher."

Why does he think that? The Put-Call Ratio. The put-call ratio is a tool used by market participants to gauge investor sentiment. The ratio measures how many put options are being traded relative to call options. He is using a 25-day total put-call ratio here.

January 2018 and 2017 both had a double-digit rally to begin the year but "the put-call ratio was a lot lower in 2018 suggesting complacency. Here we have a 14% rally or so and it's fearful. The fact that it's elevated in the face of a big rally tells me investors are skeptical we continue higher."

Stephen concludes by reiterating it is unlikely that the S&P 500 rises vertically but he feels comfortable with support between 2,530 and 2,600. Key resistance levels above include 2,740 (the 40 week moving average), 2,800 and 2,817. If you would like to see the video in full, it can be viewed here.