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The stock market has been on a resilient rise since the December lows, with the S&P 500 mechanically marching higher, to the tune of almost 25%. It has been perfect, almost too perfect, practically robotic. When digging deeper into the technical charts, some patterns emerge, suggesting the recent rise isn’t over. Those patterns would indicate that the S&P 500 may be on a pace to increase to around 3,030 over the next couple of weeks.
Economic data continues to support the recent rise in the stock market. Couple that with earnings that have been coming in better than expected, along with strong revenue growth, and it's no wonder there's been a continual bid to the market. Thus far, every pullback in the market appears as if it's being used by investors as a buying opportunity.
Even the latest Fed meeting revealed the FOMC is in no rush to cut interest rates despite the fact that low inflation couldn’t derail the rally. The market fell briefly following the announcement but managed to hold technical support around 2,900 on Thursday, May 2.
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Higher-Highs
The S&P 500 has been making a series of higher highs, and higher lows. Why is this interesting? Because the S&P 500 rose in three increments of about 160 points from Dec. 26 through Feb. 5. That pace slowed somewhat, rising in three increments of nearly 130 points from Feb. 8 through April 17. The chart below shows how mechanical the rise has been, and is what one would consider algorithmically driven.
2 to 3 Week Increments
Even more impressive is that, each time the index has rallied, paused, and resumed, the move higher has lasted for a period of 2 to 3 weeks. Currently, the S&P 500 appears to be in the middle of its next advance. This puts the index on a pace to reach 3,030 by roughly May 15, should the advance last 2 to 3 weeks along with an increase of around 130 points, like the previous 3 moves higher.
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Fundamental Underpinnings
However, there is no doubt that the recent rise to the market is due to improving fundamentals. The views of an economic slowdown that swirled during the stock market meltdown of the fourth quarter have eased. That is because the global economy may never have been as dire as some feared. For example, last week it was revealed that first quarter GDP grew in the U.S. at an annualized pace of 3.2%. Meanwhile, the most recent U.S. manufacturing PMI survey suggests the manufacturing sector is still in expansion.
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Earnings data continues to come in better than feared as well. Through April 30, the latest data from S&P Dow Jones shows 211, or 73%, of the S&P 500 companies have beaten analysts’ estimates. Additionally, only 53, or 18% have missed; while 25, or 9% have met. That is much better than the 68% of companies that beat in the fourth quarter. Additionally, revenue has increased by 5%, on par with the fourth quarter. Meanwhile, operating margins have expanded to over 11% in the first quarter from 10.1% in the fourth quarter.
If it feels like there has been an underlying bid to the market. The charts can confirm it. Even more impressive is how orderly and evenly the stock market has increased. If this current pace continues, then it seems likely that the S&P 500 is on a course to reach 3,000 and beyond very soon.
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