The S&P 500 Rallies to a Key Level of 4,600 and Approaches an All-time High. Chartists' Predictions for What Happens Next

Investors are closely monitoring the S&P 500 as it makes strides toward the pivotal 4,600 level, with anticipation building over the possibility of breaking new all-time highs. However, caution is emerging among some market observers who express concerns that the index might be advancing too rapidly.

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The prospect of a record high in the S&P 500 seems promising, especially after Friday's close at 4,594.63, marking its highest level since March 2022. The benchmark index is on the cusp of the all-time intraday high at 4,818.62 and the all-time closing high of 4,796.56, both achieved in January 2022.

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Wall Street is optimistic about sustaining the bullish momentum, citing the historical strength of December as a positive month for markets. Notably, the rally toward the 4,600 mark is noteworthy due to increased market breadth. In contrast to July, when the S&P 500 last approached this threshold, the current rally involves a broader participation, including sectors like real estate and utilities that were lagging earlier in the year.

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Despite these positive indicators, some market analysts are expressing reservations about the potential for the market to be overbought. There is a growing apprehension that the shift toward defensive sectors may signal a forthcoming downturn. On Monday, the market rally paused, with the S&P 500 closing 0.5% lower, standing approximately 5% below its record. The downward trend continued with lower openings on Tuesday.

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Rob Ginsberg from Wolfe Research raised questions about buying in at these elevated levels, stating, "As the market sits overbought and back at resistance from this Summer’s highs, we feel it begs the question. Are you really buying in at these levels?"

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Similarly, BTIG’s Jonathan Krinsky acknowledged some "warning signs," emphasizing the need to be cautious even as market breadth improves. He cautioned against overstaying in the market when potential signals of a downturn emerge.

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JPMorgan's head of technical strategy, Jason Hunter, introduced a bearish perspective, suggesting that the S&P 500 might experience a significant drop to 3,500, more than a 20% decline from its current level. Hunter's forecast is anchored in a scenario of a hard landing, which he believes could materialize next year.

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While there are contrasting opinions among market technicians, with some bullish on the prospect of a breakout above 4,600, others are urging caution. LPL’s chief technical strategist, Adam Turnquist, anticipates a breakthrough but notes that it might take several attempts due to the prevailing overbought conditions.

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Oppenheimer's Ari Wald remains optimistic about stocks surprising on the upside in the coming years, particularly favoring growth stocks. However, JC O’Hara, chief market technician at Roth MKM, advises investors to exercise caution, suggesting a shift toward quality stocks. O’Hara points out that indicators have swiftly moved from oversold to overbought conditions, cautioning against betting against the market during this time of the year but recommending a higher quality approach for those betting on the market.