Here’s how investors will know if the stock-market rally has legs, even if the S&P 500 slides further

Even if the S&P 500’s pullback continues, as looks likely on Thursday, the market’s newly bullish trend will be confirmed so long as the index doesn’t fall too far below 4,200, a level that served as a nearly impenetrable ceiling for stocks from August to early June, according to Steve Suttmeier, technical research strategist at BofA Global Research

“Holding the 4300 to 4200 areas on interim dips would set up a bullish breakout and retest pattern,” he added in a note to clients shared with MarketWatch on Wednesday.

Should the index drop below 4,200, the market could still find support around 4,100, or 4,050, Suttmeier added. The S&P 500 recently exited bear-market territory earlier this month for the first time in a year when it closed more than 20% above its closing low of 3,577.03, from Oct. 12, according to FactSet data.

The index has managed to rise more than 13% since the start of the year thanks to the outperformance of a handful of megacap technology stocks, although the rally has started to broaden over the past few weeks.

According to Suttmeier, improving moving averages on the price charts and the formation of a so-called bullish cup-and-handle-pattern suggest the S&P 500 is already in a bullish breakout portending more upside ahead.

Ultimately, the rally could see the S&P 500 could surpass 4,500 in the coming months. That would represent a significant turnaround from late last year, when only the most bullish Wall Street macro analysts expected the S&P 500 to finish 2023 at 4,500 or above.

All three major indexes posted declines on Wednesday, with the S&P 500
SPX,
+0.09%
off 0.5%, the Nasdaq Composite
COMP,
+0.51%
down 1.2%, and the Dow Jones Industrial Average
DJIA,
-0.11%
falling more than 100 points as Federal Reserve Chair Jerome Powell suggested there may be two more interest-rate hikes likely ahead this year, according to FactSet data. They’re all on track for weekly losses.