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'Panic buying' likely to drive stock market higher in the near term

Key Points
  • The S&P 500 rose more than 2 percent last week to post its seventh weekly gain in the last eight.
  • This move has pushed the broad index above its 200-day moving average, a key technical level watched by traders. It has also left the S&P 500 within reach of 2,800, a level the index has not closed above since early November.
  • "It seems a 'panic buying' mood, with purchases by investors who had been lagging the broader market, has strengthened," Nomura says.
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Spencer Platt | Getty Images News | Getty Images

Stocks could get a short-term boost as fear of missing out on gains leads more investors to plow more money into the U.S. equity market, analysts said.

The  rose more than 2 percent last week, posting its seventh weekly gain in the last eight. The surge in stocks comes as investors increasingly bet China and the U.S. will strike a trade deal in the near future. It also follows the Federal Reserve signaling it will be patient in tightening monetary policy.

"It seems a 'panic buying' mood, with purchases by investors who had been lagging the broader market, has strengthened," Masanari Takada, a cross-asset strategist at Nomura, said in a note Monday. "Systematic trend followers that had temporarily suspended buying after the weak US retail sales print have also been compelled to follow the market by adding fresh longs."

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"We believe as a short-term trading strategy of buying on dips from end-February to beginning-March targeting a subsequent return-reversal is attractive," Takada wrote.

This surge comes after a massive sell-off in December that briefly sent the S&P 500 into bear-market territory on an intraday basis.

The recent move up propelled the S&P 500 above its 200-day moving average, a technical level closely watched by investors. Usually, when a stock or an index breaks above its 200-day moving average, it signals strong upside momentum moving forward.

"At this juncture, the SPX has successfully recaptured the 200-day MA after reversing a downtrend off the October highs," Craig Johnson, chief market technician at PiperJaffray, said in a note. "Further upside from here leaves the 2,800-2,815 range as the next major hurdle for the index to clear."

The S&P 500 has not closed above 2,800 since Nov. 8 and is currently 0.9 percent from reaching that level. On Friday, the S&P 500 closed at 2,775.60.

"Although the recent price action of S&P 500 has been too volatile to grasp and exact trend, it has returned to the point where these investors are targeting ~2800 again," Nomura's Takada said.

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