Stock charts have improved, and the market is ready to retake its highs, strategists say

Published Tue, Dec 7 20212:20 PM ESTUpdated Tue, Dec 7 20214:09 PM EST

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

Strategists who follow stock charts say the market appears to have overcome the sell-off and is technically poised to head to its highs, even as the Federal Reserve meeting looms. "It certainly was oversold last week, and I think it has legs," said Robert Sluymer, technical strategist at RBC Wealth Management. "It should carry through the balance of December." Sluymer said investors were unprepared and not positioned for the onset of concerns about the Covid omicron variant. The resulting market sell-off was made worse when Fed Chairman Jerome Powell said the central bank could speed up the tapering of its $120-billion monthly bond-buying program. The Fed originally put the program in place to prop up the economy during the worst days of the pandemic in early 2020. "That really drove things lower," Sluymer said. Tax-loss selling and other factors compounded the decline. "We hit a lot of extremes coming out of the end of last week, and now I think things are rebuilding." Sluymer said the next area he is watching on the S & P 500 is 4,710, then its old high at 4,743. His charts show a period of at least three to four weeks of acceleration. The S & P 500 ended Tuesday at 4,686, a gain of 2.1%. Scott Redler, chief strategic officer at T3Live.com, said the market is aiming at its old highs, but it could pause ahead of the Fed's two-day meeting, which starts Tuesday, Dec. 14. Based on comments from Powell, the central bank will discuss speeding up its bond-buying taper at the meeting. If policymakers ultimately decide to unwind the program at a faster clip, that could open the door to the Fed's first rate hike next year. "I think this rally was definitely more fast and furious than even the bulls would have thought yesterday. It gave some signals that the rally wasn't feeble as 4,500 (on the S & P 500) held again," Redler said. "4,510 proved strong enough to keep Santa Claus on his way." Redler said the market is seeing a very big participation day. "You have small caps participating," he said. "You have small cap bio participating. That had been left for dead. Tech has been rallying. You have everything working at the same time, which is broadening the rally." The small cap Russell 2000 ended Tuesday with a gain of 2.3%. The Nasdaq was the outperformer up 3%, while the Dow was up just 1.4%. Tech was the best performing major industry, with a 3.5% gain, followed by a 2.4% gain in consumer discretionary stocks. "If the market continues like this, I don't think Jay Powell is going to have any trouble accelerating the pace of tapering," Redler added. Sluymer said the high-growth and tech names that were slammed along with the Ark Innovation ETF and other Ark funds do not need to recover for the market to keep gaining. "I don't they necessarily have to come back," he said. "Maybe they spend some time in penalty box." The Ark Innovation ETF was up 5% Tuesday.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, Nov. 8, 2021.

Michael Nagle | Bloomberg | Getty Images

Strategists who follow stock charts say the market appears to have overcome the sell-off and is technically poised to head to its highs, even as the Federal Reserve meeting looms.