Investors should buy any pullbacks in stocks as S&P 500 marches toward 13% gain by early next year, technical analyst says

• Any pullbacks in stocks are buying opportunities as the S&P 500 sets its eyes on a target of 4,000 in early 2021, technical analyst Robert Sluymer of Fundstrat said in a note on Tuesday.
• A doubling of this fall's trading range of 3,209 to 3,588 on a confirmed breakout above the September 2 high generates upside potential of 13% from Monday's close, according to Sluymer.
• "Expect pullbacks to be short lived," Sluymer said, adding that the current pause in growth and momentum stocks is unlikely to represent major tops.
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After months of sideways trading, stocks look poised for a breakout thanks to Monday's positive vaccine news and resulting stock surge.

Since August, the S&P 500 have been stuck in a 12% range bounded by an early September high of 3,558. But news of a successful COVID-19 vaccine revealed by Pfizer and BioNtech helped the index break through that upper barrier, priming it for a 13% surge into early 2021, according to technical analyst Robert Sluymer of Fundstrat.

Investors should expect a short-term pause to the current uptrend in stocks, given a more than 10% surge materialized over the past week after uncertainties surrounding the presidential election became less uncertain, he said in a note Tuesday.

But expect any pullbacks to be shallow and short-lived, according to Sluymer, who recommends investors continue to build exposure to equities on any periods of weakness.

Sluymer derived the 4,000 price target on the S&P 500 with a measured move approach. In this case, Sluymer identified the months-long 12% trading range in the S&P 500 of 3,209 to 3,588, and added that range to the breakout level of 3,588.

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Sluymer's case for continued upside in stocks is supported by daily momentum still building to the upside and a likely collapse in the VIX Index.

"We expect the VIX to collapse through year-end well into Q1 2021 supporting further upside in equities," Sluymer said.

And while cyclical stocks have been driving gains in stocks this week, a pause in growth and momentum stocks is unlikely to represent a major top, Sluymer noted. Still, Sluymer says investors should add to cyclicals.

And for the longer term, the outlook remains bullish for stocks, according to the note, with a strong cycle backdrop pointing to the S&P 500 hitting 4,400 to 4,600 into 2022.

"Using the average 4-year cycle in a secular market of 100% to 110% as a guide, a move toward S&P 4,400 to 4,600 is not unreasonable in 2022," Sluymer said.

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