The S&P 500 broke the darker grey downside trend, which dominated price action in all of 2022. Equities will probably rally to an all-time high during the next few months.
Technicals are constructive. A multi-week bottom building process is probably behind us. Nonetheless, investors remain bearish according to various sentiment/position gauges. The major equity indices diverged as liquidity dried up. Eventually, buyers stepped in and the S&P 500 broke out last Wednesday. Internals are solid and show 2-3 days close to 80% up-volume. Hence, there is buying interest after investors nearly capitulated.
A sustainable breakout above 4400 signals that a third wave is most likely unfolding. The black and red paths show how we could get there. Black charts a shake-out selloff before we witness a strong rally. The last leg of a complex second wave could target between the 4220-4290 S/R cluster. An overbought 5-day RSI hints that this could happen as bulls fail to take the 4400 during the next couple of trading days.
The red scenario shows that the S&P 500 trades within the first of a third wave already. Hence, there will be no material pullbacks within the red scenario. Instead, investors experience fear of missing out and bring their liquidity to the stock market. There is plenty of cash on the sidelines as the BofA Global Fund Manager Survey reveals. Similar levels were recorded near the beginning of substantial rallies.
The bottom line is that the bull run is maturing but not over. The S&P 500 remains on target for 5000-5200.