The S&P 500 has staged four consecutive weeks of gains, propelling the benchmark index to fresh all-time highs.
Despite some negative divergences suggesting a potential consolidation, the overall trend remains firmly bullish, BTIG strategists said in a note on Sunday. The S&P 500 is underpinned by a support level at 5260, with additional support in the 5160-5200 range.
The negative momentum and breadth divergences are also accompanied by growing speculation, as evidenced by Thursday’s record-high Nasdaq Composite volume driven by sub-$1 stocks. Meanwhile, the equity put/call ratio has returned to complacent levels.
Moreover, the High Beta versus Low Volatility index is not confirming the new highs, which, according to BTIG, could indicate a shallow pause or pullback rather than a long-lasting decline.
“All of this suggests a shallow pause/pullback over coming weeks rather than something more long-lasting. The bigger story, in our view, is the recent breakouts in China and many commodities (gold, silver, copper, uranium, etc) as well as the related equities,” analysts at BTIG wrote.
“We think this 'great reflation' trade has more to go and would highlight energy stocks as particularly timely here after a multi-week pullback,” they added.
Analysts note significant multi-year, potentially decade-plus breakouts in assets such as SLV, Copper, GDX (NYSE:GDX), XME, and Uranium miners.
“With China now acting better, this story appears far from over,” they wrote.
The strategists also highlight that the Energy sector looks timely, as XLE is holding support after a four-week pullback and is close to flipping to a buy signal.