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By John Spence & Tom Lydon

The S&P 500 and ETFs pegged to the U.S. blue-chip index finally set new intraday highs on Wednesday, even though most individual investors still don't seem to have much faith in the rally.

SPDR S&P 500 (NYSEARCA:SPY) traded as high as $158.84 a share on Wednesday, eclipsing its October 2007 record high of $157.52 a share.

The S&P 500 joins the Dow Jones Industrial Average in retracing at least 100% of the losses suffered during the financial crisis.

However, many investors doubt the rally as the Federal Reserve continues to inject liquidity and the employment market remains soft.

"Markets are extended at this point, but the rally has been led by defensive stocks, and any bad news, such as last Friday's jobs data, will give investors incentives to take profits," said Gary Thayer, chief macro strategist at Wells Fargo Advisors, in a Financial Times report.

"We believe overall fundamentals are good and that the Fed will not slow the quantitative easing program prematurely. Once the economy is truly improving and the stimulus is gradually withdrawn, markets will still be supported by positive growth," he added.

However, Tomi Kilgore at WSJ.com's MarketBeat blog reports that even as the S&P 500 hits a new all-time high, fewer stocks are participating in the index's rally.

"That's something that is giving technicians reason to doubt the sustainability of the rally," Kilgore wrote. "Technicians believe declining participation in a rally means there is less support for further gains."

Yet Investors Intelligence technical analyst Tarquin Coe said conditions are not overbought and sentiment is not euphoric as the S&P 500 sets a new high, breaking the previous record from 2007 at 1576.09.

"The index should now follow through on its breakout, likely up to the psychological 1600 level," he said.

Other ETFs pegged to the benchmark include Vanguard S&P 500 ETF (NYSEARCA:VOO) and iShares S&P 500 Index (NYSEARCA:IVV).

S&P 500

(click to enlarge)

Full disclosure: Tom Lydon's clients own SPY.

Source: ETF Chart Of The Day: S&P 500