The S&P 500 hit a new cycle high last week, supported by 68% of NYSE stocks trading above their 200-day average. According to Oppenheimer strategists, a major market top is unlikely at this stage.
Historical data from 1999, 2007, 2015, 2018, and 2022 shows that the final peaks of the S&P were all characterized by a 200-day participation reading below 60%.
While the current bull cycle has yet to see a definitive 200-day participation reading above 70%, which would indicate a broad-based breakaway, constructive price action in the Russell 2000 implies that such a breakaway “should finally develop over the coming months,” strategists pointed out.
“Overall, we recommend investors maintain a bullish posture in anticipation of higher market highs and pro-cyclical leadership,” they said in a Saturday note.
“For the S&P, we see 5,160 as trading support (50-day average) and little identifiable resistance.”
For market signals, the participation of small-cap stocks in price terms is more important than their relative leadership, Oppenheimer continued. The investment bank finds it promising that the Russell 2000 has stayed above its 200-day average and is now attempting to overcome a two-year resistance level.
“We see this as a bullish change in character vs. corrective periods in 2023 and believe it positions the market for a broader and stronger rally looking ahead,” strategists said.
“Relative to the S&P 500, we’re unsure if small-caps are more than a short-lived beta trade without an earlier-stage economy,” they added.
As for Nasdaq-100, Oppenheimer reiterated the tech-oriented index as a core holding, highlighting its underappreciated stability and its role in driving the market’s long-term growth. Despite a moderation in its ratio relative to the S&P 500, strategists expect a breakout above its 2021 peak.
Moreover, they prefer an offensive approach over defense. As such, sector-wise, Oppenheimer maintains Overweight positions in Technology and Financials, with a particular focus on Semiconductors and Capital Markets.
“For the Semiconductor SOX, we’re encouraged the index is turning up from support on both an absolute and relative basis. We see this as a resumption of the SOX’s Q1 breakout above multi-year resistance dating back to 2021,” the firm commented.
