- There’s “lot of gas left in the tank” to drive stocks higher from current levels, Fundstrat said in a note on Tuesday.
- According to Tom Lee, a positive reversal in stocks on Monday following a 2% intraday decline in the face of bad news is not the sign of a market top and suggests stocks will surge into year-end.
- “Despite what felt like a damaging day, yesterday’s rebound was positive technically from our perspective,” Fundstrat’s technical analyst Robert Sluymer said.
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The steep decline and subsequent recovery in the stock market on Monday was not a sign of a topping stock market, especially in the face of bad news, Fundstrat’s Tom Lee said in a note on Tuesday.
Stocks sold off sharply and volatility surged in Monday’s trading session as investors grappled with news of a mutated COVID-19 strain spreading in the UK. The strain, which is though to be more contagious than the original strain, led to a number of European countries banning travel from the UK.
But a subsequent recovery staged in late-morning and afternoon hours led stocks to close nearly flat. To Lee, that mid-day rally lends credence to the idea that there is “lots of gas left in the tank” to drive stocks higher into year-end.
“This is very strong price action. In the face of bad news, and a very horrific open, stocks did not manage to see much further downside selling,” Lee explained. “Instead, in the face of bad news, stocks closed above their open. This suggests to me there is a lot more gas still in the tank and stocks can rally strongly into year-end.”
Fundstrat technical analyst Robert Sluymer was also constructive on Monday's price action and further expanded on where stocks can go from now until year-end.
"Despite what felt like a damaging day, yesterday's rebound was positive technically from our perspective," Fundstrat's technical analyst Robert Sluymer said.
Sluymer sees a move higher towards 3,900 to 4,000 on the S&P 500, which represents potential upside of 6% to 8% from Monday's close. The upside trajectory would likely be driven by heavyweights like Apple and Microsoft, Sluymer noted. For its part, Apple surged as much as 5% on Tuesday.
On the flip side, Sluymer said a break below 3,633 on the S&P 500 would suggest further downside potential to the 50-day moving average, currently at 3,555, representing potential downside of 4% from Monday's close.
Lee also observed that recent conversations with asset managers have revealed that a majority of them are skeptical of the ongoing stock market rally and believe it's on "borrowed time." This negative sentiment sets stocks up well for a continued rally higher as few believe in a Santa Clause rally continuing into year-end.
