My shorter-term analysis for the markets continues to stay bullish and suggests the U.S. reflation trade, the strengthening of the U.S. economy and the global economy, and recovery from the COVID-19 restrictions will likely prompt a moderately strong upside price trend leading into at least mid Q2:2021. The recent strength of the U.S. dollar is helping to push capital into the U.S. markets as foreign investors attempt to shift capital away from emerging market and currency weakness and the Treasury yield rallies seem to have indicated a moderate warning related to global central banks attempting to front-run inflation concerns.
SPY Targeting $410, Then $425 Or Higher
If the U.S. dollar continues to strengthen and foreign capital continues to flow into the U.S. stock market, then my research team and I believe a continued “melt-up” bullish price trend will continue, similar to what happened in 2018~2019. As we can see on the chart below, the upside price target for the SPDR® S&P 500 (NYSE:SPY) is $410.15. Once that level is reached, we believe a moderate sideways bull flag will set up and prompt another upside price rally targeting $425~$430.
The rally in the U.S. stock market will likely continue until key factors break down. We don't know what those key factors are going to be, but we are watching our custom indexes and proprietary price modelling systems to identify if and when that breakdown takes place. Currently, we don't see any real risk to a sudden downside price trend based on our research. Of course, some sudden collapse in the global credit/banking industry, war or some other unknown externality could easily disrupt the current balance of the markets.
Right now, we are targeting the $410 level on the SPY and expect the next leg higher to target $425~430. We believe the current market environment supports a continued $24~$28 Fibonacci Expansion range stepping higher as moderate pullback events take place after reaching subsequent upside targets. This “upward stepping” price pattern will likely continue as the reflation trade pushes a continued “melt-up” price event.
As with all things, we make decisions based on what we know right now and not based on what may or may not happen as a guess. Our research and custom indicators suggest a strengthening U.S. dollar will pull foreign capital investments into U.S. sectors/stocks and likely prompt another “melt-up” type of trend over the next few weeks and months.