S&P weakness over the coming weeks should be used as an opportunity to add to positions, says Ari Wald, Technical Analyst at Oppenheimer.
Wald thinks the S&P 500 will work through short-term overbought conditions before a strong year-end rally takes hold for the rest of December and into the first few months of 2017 (see Chart 1). He cites several reasons why he believes the market is significantly stronger this year compared to the same time last year and why he thinks the bull market will continue in 2017:
1) Internal breadth is broader
2) Leadership is cyclical
3) Credit spreads are narrowing
4) Commodity prices have stabilized
5) Interest rates are moving in the right direction
6) The overall trend is stronger
As such, Wald thinks the S&P will rise at a moderate pace, in a similar manner to 2004 to 2006 when the Fed was also at the beginning of a tightening cycle (see Chart 2).
His top four sector recommendations are Technology, Industrials, Financials and Energy