Morgan Stanley is bullish: U.S. stocks break free from the black hole dilemma, with the next target for the S&P 500 at 6125-6170

According to the Zhitong Finance APP, a recent report on U.S. stock technical strategy released by JPMorgan Chase pointed out that the easing of the China-U.S. trade war has driven the S&P 500 index to break through the key resistance level of 5750-5785, confirming the entry into a low-volatility rebound cycle. It is recommended to set 5600 as the stop-loss level for long positions, with a target looking towards 6125-6170. The previously underperforming "Magnificent 7 Index" has regained leadership, breaking through the 200-day moving average and other resistance levels, with short-term resistance at 25429-25618 and a long-term target of 27794-28060. The report emphasizes the consistency of technical signals with historical patterns but warns to be cautious of short-term top formations or geopolitical risks impacting market sentiment.

The bank stated in the report that the U.S. stock market has escaped the "black hole dilemma." After the easing of the China-U.S. trade war this weekend, the S&P 500 index gapped up, breaking through the key resistance level of 5750-5785, marking the market's return to a low-volatility rebound mode. This range not only includes several traditional chart technical levels but also the 3% threshold above the 52-week volume-weighted average price (VWAP) of the S&P 500 ETF (SPY). Since the mid-1990s, the index has closed above this threshold after significantly dropping below the 52-week VWAP, continuing its upward trend in the following weeks or even months.

Given the differentiated trading characteristics of the index around this key volume-weighted average line, the bank recommends using this 3% threshold as the stop-loss level for bearish views. Previously, the bank had anticipated that the index would turn bearish after alleviating the deeply oversold condition and reaching an initial rebound target of 5500 points (as of early May).

Additionally, the bank suggests shifting to a more bullish trend-following strategy, using the 5600-point key support area as the initial stop-loss level for long trades. On the upside, the index has effectively broken through the trend line at 5908 points in November 2024. Before any significant signs of trend slowdown, short-term top formations, or potential disruptions to the new bull market sentiment appear, the bank lists the 6125-6170 point range as a potential upward target area for the summer.

The market has temporarily returned to the old leading sectors, with the Magnificent 7 regaining its momentum. Previously, after leading for several months, the Magnificent 7 Index underperformed compared to U.S. large-cap stocks from December 2024 to mid-April 2025. Since mid-April, this index has once again become the leading sector, similar to the broader market, gapping up and breaking through a series of key technical levels, including the 200-day moving average, the March rebound high, and the key resistance levels of the internal trend line from January 2023, further solidifying this position.

Breaking through this key resistance level has disrupted the mid-term bearish expectations, which previously leaned towards further bottoming out and retesting key support again in late spring and summer. In contrast, current attention is focused on the 25429-25618 point range (the low point of the top formation from December 2024 to February 2025), the 25833 point in December 2024 (78.6% retracement level), and the 26800 point in April 2025 (bottom formation measurement target) As the next potential resistance range. Other long-term resistance levels are the cycle high of 27,794 points in December 2024 and the mid-gap target of 28,060 points in May 2025.

Similar to the market strategy, Morgan Stanley recommends shifting to a trend-following strategy, using the Monday gap of 22,824 points as the stop-loss level for new entry risk positions after the breakout. Other support levels include the 50-day moving average and the gap of 22,013 points on May 1. The bank expects this round of upward momentum and the reestablished leading position of the seven giants to continue until summer, with initial resistance levels at 25,429-26,800 points and potential upward targets in the resistance range of 27,794-28,060 points.