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The stock market is currently experiencing a bullish technical breakout, paving the way for potential gains in the final stretch of the year. Key indicators and analyst insights suggest that the recent surge in stock prices may continue, with a focus on the S&P 500 and the Nasdaq 100.
1. Breakout Overview:
- The recent surge in stock prices follows the October Consumer Price Index (CPI) report, indicating a cooling down of inflation. This triggered a notable decline in interest rates and a substantial 2% surge for both the Nasdaq 100 and the S&P 500.
2. S&P 500 Technical Analysis:
- Technical analyst Katie Stockton of Fairlead Strategies sees a positive short-term catalyst as the S&P 500 confirms its breakout above minor resistance from the daily cloud model.
- This breakout suggests a potential test of more crucial resistance near 4,600 in the coming weeks, signaling a nearly 3% gain from current levels and bringing the index within 5% of its January 2022 record highs.
3. Nasdaq 100 Upside Potential:
- Bank of America technical analyst Stephen Suttmeier notes the outperformance of the Nasdaq 100, emphasizing its significant upside potential.
- The Nasdaq 100’s breakout above its downtrend line from late July indicates the potential for a rally back to the July peak at 15,932 and the late-2021 peaks near 16,600 to 16,765.
- The current level of the Nasdaq 100 at about 15,800 suggests a potential 6% upside to its 2021 peak.
4. Contrarian Bullish Signal:
- Suttmeier draws confidence from the contrarian bullish signal generated by the 25-day put-to-call ratio, which spiked in October.
- The put-to-call ratio, indicating investor sentiment, reached a level that historically aligns with market bottoms and potential upside. This supports the case for a seasonal low in the S&P 500 and is considered bullish.
5. Breadth as a Key Indicator:
- Suttmeier emphasizes monitoring breadth, specifically the share of S&P 500 stocks above their 50-day moving average.
- Holding at 37% to 36% keeps the bullish breakout intact, suggesting ample room for further gains until reaching overbought levels.
Conclusion:
- The overall market sentiment is optimistic, with technical indicators and analyst assessments pointing towards a potential continuation of the bullish trend. Investors are advised to keep an eye on key resistance levels and participate in stocks showing strength in the rally.
