Chartists See Scope for S&P 500 to Extend Reflation-Driven Rally

(Bloomberg) -- Investors anticipating more stock gains amid the recovery from the pandemic may find support in technical patterns that strategists view as positive for the S&P 500 index.

Technical analysts from JPMorgan Chase & Co. to Evercore ISI are sticking with bullish outlooks for the gauge this year. The index has jumped about 75% from March’s low -- a climb that for others raises doubts about the scope for a further substantial advance in 2021. JPMorgan sees the next chart resistance at 4,041 -- at what it terms the March bull channel mid line -- and then another point at 4,074. The gauge closed at 3,910 on Wednesday.

“Bigger picture, look for bullish trend dynamics to dominate in 2021,” Jason Hunter and Alix Tepper Floman, technical strategists at JPMorgan, wrote in a note. “Even if the market stalls and pulls back over the near term, we do not see a price pattern or other technical indications that suggest the broader rally structure is at risk for a lasting or material reversal.”

The so-called reflation trade aiming to ride the expected economic recovery from the health crisis remains the dominant market theme. At the same time, the prospect of faster inflation and higher bond yields is vexing investors who view such a mix as risky for richly valued stock markets.

Evercore’s Rich Ross wrote in a note Tuesday that chart patterns suggest the U.S. gauge remains on course for 4,050 this quarter, which would be an advance of about 3.5% from current levels. Strategists at Piper Sandler have a year-end target of 4,225, and say the technical setup remains constructive as the S&P 500 continues to generate new highs.

There are some suggestions of a loss of intraday momentum that’s worth noting after a “strong” rally month-to-date, said Katie Stockton, founder of Fairlead Strategies LLC. She pointed to Wednesday’s so-called outside down day, which occurs when a day’s high-low range encompasses a previous day’s range and there is a lower close.

However, “long-term momentum is still to the upside,” she said.

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