Market charts point to a year-end rally for stocks, technical strategists say. Here’s why

Published Tue, Nov 16 20212:32 PM ESTUpdated Tue, Nov 16 20212:44 PM EST

Patti Domm @in/patti-domm-9224884/@pattidomm

Strategists who watch charts say the stock market is well positioned to push higher into the end of the year. Katie Stockton, founder of Fairlead Strategies, said the market is working through a period of consolidation that should set it up for a positive year-end move. "We haven't advanced from the consolidation phase yet, but we expect that next week," she said. That should set the market up for a move higher into record territory. The S & P 500 , Dow Jones Industrial Average and Nasdaq Composite are so far higher on the week, but the small cap Russell 2000 is off 0.2%. The indexes last hit new highs earlier in the month. Indeed, certain industry ETFs, including those focused on retail and homebuilders, are turning around in the short term, strategists say. Meanwhile, technical charts are suggesting that further upside is ahead for the major indexes. "My take is bullish into year-end, and then I'm looking for a corrective phase in Q1," Stockton said. Buy signals in key ETFs For now, the market is showing plenty of signs of short-term momentum. For instance, Stockton said the SPDR S & P Retail ETF and the SPDR S & P Homebuilders ETF are showing momentum buy signals. "They were out of favor and range bound through most of the spring and summer, and now have advanced from those ranges," she said. She said the VanEck Semiconductor ETF has already made a decisive breakout, as have the Invesco Solar ETF and Invesco WilderHill Clean Energy ETF . Dow theory signals "A bullish trading cycle remains in place for the [S & P 500]," said Stephen Suttmeier, chief equity technical strategist at Bank of America. He noted this week that the Dow theory confirms a primary uptrend, as most market breadth indicators improved, and that endorses the rally. A tenet of the Dow theory states that it's a bullish indicator when the Dow Transports index joins the Dow Jones Industrial Average at all-time highs. The Transports index touched a new high on Nov. 2 , but has pulled back since then. Suttmeier notes that the S & P 500's breakout in late October was a bullish sign for the seasonally strong November to January period, as well as the November to April period. He sees upside potential of 4,765 to 4,815, and he says the index's support levels are from 4,560 to 4,537. "The rising channel does not rule out 5,000 in early 2022," Suttmeier wrote in a recent note. The S & P most recently set a new high at 4,718.50 on Nov. 5. It was trading around 4,711 Tuesday afternoon. Suttmeier said key support for the S & P, 500, Nasdaq Composite, Nasdaq 100, Russell 2000, and S & P Midcap 400 remain intact, and the technicals favor year-end rallies for those indices. "Volatility remains subdued and intermediate-term momentum remains to the upside. Breakouts continue to unfold from a bottom-up perspective as breadth expands," said Fairlead's Stockton. "This can help fuel a market that appears extended by removing hurdles on the charts."

Traders on the floor of the NYSE, October 28, 2012.

Source: NYSE

Strategists who watch charts say the stock market is well positioned to push higher into the end of the year.