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

The S&P 500 index is set to log its third-straight daily drop on Wednesday, its first such losing streak since May 4, according to FactSet data, but that doesn’t mean the index’s “bullish breakout” is canceled. More likely, it’s just getting started.

Even if the large-cap gauge continues to see modest declines, the market’s newly bullish trend will be confirmed, according to Steve Suttmeier, technical research strategist at BofA Global Research, 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, Suttmeier said.

If the index does drop below 4,200, it could still find support around 4,100, or 4,050. 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. 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.

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