Along the way, some of the detritus for the market will have to clear, then pave the way a strong late-year rally. The S&P 500 is approaching a 10 percent correction, a level the Dow industrials and at least six S&P sectors have breached.
"Using history as our guide, we recognize that stocks often accelerate once they break topside a key resistance level and then back and fill (a shakeout) once the momentum stalls," Johnson and Reddy wrote. "Hence ... we suspect this is exactly what is unfolding. This is where weaker-handed investors will be shaken out over coming months. So fasten your seatbelts as we suspect more turbulence lies ahead."
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Technical analysis suggests the S&P 500, which opened Wednesday's seesaw session around 1,938, will look for support around the 1,820-1,900 range.
"At this juncture, we suspect this sell-off will likely take more time to play out and lead to a deeper pullback in the popular averages before it runs its course," they said. "We advise investors to not get shaken out of long-term positions and remain focused on the best relative strength (sectors and stocks)."
Piper is upgrading tech to overweight from neutral and utilities to neutral from underweight, while cutting consumer cyclical to neutral from overnight and transportation to underweight from neutral. In addition to reiterating its 2,350 call, the firm also is forecasting a 10-year yield in the 2.5 percent to 2.75 percent range, a move that also will require a significant market shift considering the benchmark government note currently sits just above 2.1 percent.
The bullish call comes nearly five months after the firm had to walk back that very same 2,350 call for 2015, amid the vicious market turbulence in August. Even after taking its target down to 2,135, the Piper call was still too optimistic, missing the 2,043 Dec. 31 close by more than 4 percent.
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Investor sentiment remains muted, to say the least. The Investors Intelligence survey, which polls professional newsletter authors, most recently found bullishness at just 28.6 percent, with bears at 35.7 percent. The levels are getting close to the pessimism that hit the market in late August, which proved to be a good buying opportunity.
Indeed, Piper compares current conditions to the markets in the early 1980s and in 1951, when sell-offs created strong entry points.
"To quote Mark Twain, 'history does not repeat itself, but it does tend to rhyme,' " the Piper analysts wrote. "Should today's price action rhyme with that of prior secular bull markets, we suspect that there may be meaningful upside ahead for the popular averages over the next several years."