The S&P 500 just reclaimed a key technical level that paves the way for a year-end rally, Fundstrat says

NYSE trader
  • The S&P 500 closed above its 50-day moving average on Friday, signaling that stocks will continue to rise.
  • “This is a sign of the resumption of the uptrend. And given the following constellation of factors, we see stocks surging into year-end,” Fundstrat said Monday.
  • With the S&P 500 back above its 50-day moving average, the next level to watch is its record high.
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The S&P 500 reclaimed a key technical resistance level on Friday when it decisively closed above its rising 50-day moving average.

The near-1% surge on Friday ended an almost three-week consolidation period that sent the S&P 500 below its 50-day moving average amid a period of weak seasonality for the index. And while stocks opened lower Monday, the S&P 500 held above that key support level.

Now the only remaining resistance level for the S&P 500 is its prior record high, representing potential upside of about 2% from Friday’s close.

Fundstrat’s Tom Lee thinks the stock market can rise even higher into year-end as a number of bullish factors begin to line up.

“The S&P 500 managed to close [above] its 50-day moving average last Friday. This is a sign of the resumption of the uptrend. And given the following constellation of factors, we see stocks surging into year-end,” Lee said in a Monday note.

Those factors include third quarter earnings showing continued margin growth, supply-chain disruptions easing, technicals improving, COVID-19 cases falling, and the Federal Reserve remaining supportive of risk assets via its monthly bond purchases and near-zero interest rates, according to the note. The Fed has signaled it will start tapering bond buys this year though the process will last into next year.

And the move higher in stocks comes despite ongoing bearish positioning among investors and the nonstop tendency for pundits to call a top in the stock market this year, according to Lee. “For basically all of 2021, the S&P 500 has risen in the face of deep skepticism, particularly from market pundits.”

Those worries that made some think stocks would continue to fall included higher oil prices, the third wave of COVID-19, soaring commodity prices like lumber, and a surge in interest rates, among others. But the stock market has a tendency to climb a wall of worry, which was no doubt in place in 2021.

Lee previously has put a 4,700 year-end price target for the S&P 500, representing potential upside of 5% from Friday’s close.

S&P 500 price chart