JPMorgan: Here's what keeps the bull market alive

Published Thu, Jul 14 201611:14 AM EDTUpdated Thu, Jul 14 20162:01 PM EDT

For the rally to last, the jump higher in stocks this week will need to be supported by cyclical stocks, JPMorgan told clients. "The leadership shift away from dividend payers needs to stick for the S & P 500 breakout rally to have legs," read the technical note from the investment bank. In the first half of the year, the hunt for yield led investors to overweight sectors like utilities and telecoms , known for their low-beta qualities and above-average dividend payments. That trend, however, reversed in the past few days, as market participants bought stocks that are more sensitive to the economic cycle. "In our view, that new dynamic needs to develop into a lasting trend for the breakout rally to extend through the next layer of resistance at 2,169-2,183," technical analysts at JPMorgan wrote, an upward move of as much as 1.4 percent from Wednesday's close. Based on historical patterns, JPMorgan believes a similar shift in leadership took place in 2013, when the S & P 500 broke out of the bull market cycles of 2000 and 2007. Source: JPMorgan "As we have had a long-standing view that the index would eventually break through the 2,135 peak, we will operate under the assumption the current breakout can develop into a broader and sustained trend," the investment bank said. For those seeking to chase the strength in the rally, JPMorgan recommends turning to the Nasdaq 100, which has lagged behind the group and seems on the verge of breaking out. Source: JPMorgan "The Nasdaq 100 has some room to go before it would reach the 4,739 bull cycle peak and would likely outperform the S & P 500 Index if the broader rally is to continue," technical analysts at JPMorgan wrote, describing a potential move of 3 percent from here. Even if a pullback was to materialize in the short term, the investment firm believes the long-term bullish pattern for the Nasdaq 100 remains positive as long as the index stays above the 4,460-4,495 level. For now, bullish momentum remains on investors' side. "The positive reversal pattern that has formed on the weekly RSI momentum gauge bolsters a positive outlook and the indicator's attempt to break the long-standing downtrend marks another positive development," read the note.

Marco Cristofori | Robert Harding World Imagery | Getty Images

For the rally to last, the jump higher in stocks this week will need to be supported by cyclical stocks, JPMorgan told clients.

"The leadership shift away from dividend payers needs to stick for the breakout rally to have legs," read the technical note from the investment bank.

In the first half of the year, the hunt for yield led investors to overweight sectors like utilities and telecoms, known for their low-beta qualities and above-average dividend payments. That trend, however, reversed in the past few days, as market participants bought stocks that are more sensitive to the economic cycle.

"In our view, that new dynamic needs to develop into a lasting trend for the breakout rally to extend through the next layer of resistance at 2,169-2,183," technical analysts at JPMorgan wrote, an upward move of as much as 1.4 percent from Wednesday's close.