- Any pullbacks in
stocks are buying opportunities as the S&P 500 sets its eyes on a target of 4,000 in early 2021, technical analyst Robert Sluymer of Fundstrat said in a note on Tuesday. - A doubling of this fall's
trading range of 3,209 to 3,588 on a confirmed breakout above the September 2 high generates upside potential of 13% from Monday's close, according to Sluymer. - "Expect pullbacks to be short lived," Sluymer said, adding that the current pause in growth and momentum stocks is unlikely to represent major tops.
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After months of sideways trading, stocks look poised for a breakout thanks to Monday's positive vaccine news and resulting stock surge.
Since August, the S&P 500 have been stuck in a 12% range bounded by an early September high of 3,558. But news of a successful COVID-19 vaccine revealed by Pfizer and BioNtech helped the index break through that upper barrier, priming it for a 13% surge into early 2021, according to technical analyst Robert Sluymer of Fundstrat.
Investors should expect a short-term pause to the current uptrend in stocks, given a more than 10% surge materialized over the past week after uncertainties surrounding the presidential election became less uncertain, he said in a note Tuesday.
But expect any pullbacks to be shallow and short-lived, according to Sluymer, who recommends investors continue to build exposure to equities on any periods of weakness.
Sluymer derived the 4,000 price target on the S&P 500 with a measured move approach. In this case, Sluymer identified the months-long 12% trading range in the S&P 500 of 3,209 to 3,588, and added that range to the breakout level of 3,588.
Sluymer's case for continued upside in stocks is supported by daily momentum still building to the upside and a likely collapse in the VIX Index.
"We expect the VIX to collapse through year-end well into Q1 2021 supporting further upside in equities," Sluymer said.
And while cyclical stocks have been driving gains in stocks this week, a pause in growth and momentum stocks is unlikely to represent a major top, Sluymer noted. Still, Sluymer says investors should add to cyclicals.
And for the longer term, the outlook remains bullish for stocks, according to the note, with a strong cycle backdrop pointing to the S&P 500 hitting 4,400 to 4,600 into 2022.
"Using the average 4-year cycle in a secular market of 100% to 110% as a guide, a move toward S&P 4,400 to 4,600 is not unreasonable in 2022," Sluymer said.