Piper Sandler's Johnson sees S&P 500 rallying 30% by year's end, says bears 'missed the lows' of the coronavirus panic

MW Piper Sandler's Johnson sees S&P 500 rallying 30% by year's end, says bears 'missed the lows' of the coronavirus panic

By Chris Matthews, MarketWatch

Technical indicators argue against a retest of the March 23 low

U.S. stocks have been on a roller coaster ride this year, as fears of the economic impact of the coronavirus epidemic catalyzed the fastest bear market in history, while massive financial stimulus and signs of improvement in the health crisis have led to an equally rapid rebound in recent weeks.

While the drama has forced some strategists to suspend for the S&P 500 index , Craig Johnson, senior technical strategist at Piper Sandler has stood by his call that the index will close out the year at 3,600, or more than 30% above Tuesday's closing level and 61% above its closing low of 2,237 on March 23.

"I'm not one of these guys who whips these price targets around," Johnson told MarketWatch. "There's no value in that case in having a price target."

Even when Johnson published his target in early December of last year, he ranked as the most bullish strategist in a MarketWatch survey of 18 forecasters. Today it makes him one of the street's most conspicuous bulls, but it's a position he defends first and foremost with technical analysis.

"We like this market and we believe the lows were put it," he said. "Many investors are misaligned and missed the lows, but we did not."

He pointed to momentum indicators for the S&P 500, like the relative strength index and the moving average convergence/divergence (MACD) indicator that show stocks were deeply oversold by late February. Piper Sandler's 40-week Technique indicator, which measures market breadth in terms of the share of stocks trading above their 40-week highs registered its all-time largest weekly drop in late February and subsequently fell below 1%.

"Readings this low have only been observed less than a handful of times over the last 50 years, and have also marked intermediate-term bottoms for the broader market," he said. "When these tools go to zero and you look out 26 weeks later, you're higher by 13% almost 100% of the time."

Johnson admits that it would be typical for markets to retest lows following a bear-market crash like the one that occurred between mid February and late March. "What's different this time is you have had unprecedented fiscal and monetary stimulus" in terms of both the magnitude of spending and speed with which it was delivered, he said.

Price action has also cast doubt on those hoping for a retest of the lows to create a more attractive entry point. "There aren't even a dozen stocks that have retraced even 50% of those March 23 lows, he said. " You have no technical evidence to say that you'll get a retest because the price action tells you it's not happening."

Those who are waiting for "clarity" on how the coronavirus response has impacted corporate earnings will be left behind, Johnson added. "There's too many folks on the street that are going to wait to get guidance, but by the time you get guidance from these companies and they feel comfortable reentering the market, these stocks are going to be up 50%."

-Chris Matthews; 415-439-6400; AskNewswires@dowjones.com

(END) Dow Jones Newswires

April 14, 2020 15:13 ET (19:13 GMT)

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