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According to Bank of America, the stock market could see a substantial 23% upside if a critical technical level is breached. Analyst Stephen Suttmeier from BofA suggests that a decisive break above 4,600 for the S&P 500 would confirm the formation of a bullish chart pattern.
Suttmeier explains that a significant move above the low 4,600s would validate the emergence of a “cup and handle” pattern. This pattern involves a basing formation resembling a “U,” followed by a handle formed during a short-term downtrend. Once the break above the handle occurs, it often indicates the potential for further upside, extending an existing uptrend.
The cup-and-handle pattern forming in the S&P 500, according to Suttmeier, signals additional potential upside for the index. The analyst suggests that the index could reach levels beyond the all-time high at 4,819, aiming for a measured move in the low 5,200s and a broader base pattern count in the 5,600s.
All three of these short-, medium-, and long-term price targets would represent record all-time highs for the S&P 500. This follows the index’s peak at around 4,800 in the first week of January 2022.
Suttmeier points to the positive factor of the S&P 500’s long-term moving averages, stating that “rising 40-week and 200-week moving averages underpin this bullish longer-term technical setup.”
The analyst also highlights the formation of bullish cup-and-handle patterns in the Nasdaq Composite, technology, semiconductor, and homebuilders sectors, indicating an improvement in market participation.
To support the potential upside in the stock market, Suttmeier notes that asset managers still have substantial buying power. He explains that after adding to net long positions during the FOMO (fear of missing out) summer rally, asset managers reduced net longs on the fall dip. This reduction provides them with buying power for a year-end rally, which tends to be strong in Presidential Cycle Years.
Retail investors also contribute to the buying power, with hundreds of billions of dollars poured into cash this year. The total money market assets held by retail investors have reached a record $1.62 trillion.
