This technical-analysis pattern suggests the S&P 500 could jump 30% from current levels, according to BofA

• Despite September's correction in the stock market, the long-term technical setup for further upside is intact heading into the November election, according to Bank of America.
• Based on a completed "cup and handle" technical-analysis pattern, the S&P 500 could rise to 3,700 to 4,300, representing potential upside of 12% to 30% from Friday's close, Bank of America said.
• Encouraging margin-debt data suggests that the market sell-off is a seasonal correction and not a long-term top, according to Bank of America.
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The September correction in the stock market should be viewed as a seasonal correction and not as a long-term top, according to Bank of America.

In a technical-analysis note on Monday, Bank of America said investors should continue to hold on for upside in the S&P 500 heading into the November election.

Specifically, a completed "cup and handle" pattern suggests the S&P 500 could rise to 3,700, representing potential upside of 12% from Friday's close, the bank said. It also derived a longer-term target of 4,300 from the technical-analysis pattern, representing 30% upside.

"SPX 4300 is an aspirational upside count, but one that is achievable based on the bullish breakout, positive backdrop signals and our secular bull market roadmap," Bank of America said.

A "cup and handle" is a bullish continuation pattern that is best defined as a sell-off in a security, followed by a recovery to the highs seen before the sell-off, followed by a mild correction. From there, the security is set to move higher if it breaks above the handle correction level.

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In this case, the highs seen in February, the ensuing COVID-19-induced sell-off, and the eventual recovery in stocks would represent the cup of the pattern, and the midsummer correction in stocks would represent the handle.

As long as the S&P 500 holds on to the range of support found at 3,000 to 3,200, the bullish pattern is intact.

Meanwhile, encouraging margin-debt data has confirmed the recent uptrend in stocks, according to Bank of America. Investors are borrowing more to participate in the upside move in stocks, with the Financial Industry Regulatory Authority saying margin debt rose in July and August.

"The margin debt growth rate has begun to outpace the SPX in 2020. This suggests that investors have gotten confident enough to take on leverage," Bank of America said.

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