BofA: S&P 500 Is Forming a Bullish Flag During Consolidation, Long-Term Target Still Seen Above 8,000

BofA technical analysts remain bullish on the long-term rally, seeing the S&P 500 potentially rising above 8,000, even as a series of recent market and macro headwinds test investor confidence. After breaking out of a weekly pennant formation in early August, the benchmark index has successfully reached BofA's previously set one-year target of 7,741. Technical strategist Paul Ciana noted in a client report that as long as the index holds the key 7,500 support, the broader uptrend remains intact; as of press time, the index was around 7,620. Ciana said the recent price consolidation is forming a potential bullish flag on the daily chart, and a decisive close above the 7,760-7,770 resistance zone would confirm the pattern. A successful breakout above that level would reopen upside targets of 8,000 and 8,234, with a longer-term projection of 8,541. While the overall setup remains constructive, BofA warned that short-term confidence has weakened due to conflicting technical and fundamental signals, highlighting key drags including negative momentum divergence in the Relative Strength Index (RSI), a weakening MACD, historically weak September-October seasonality, rising U.S. 10-year and 30-year Treasury yields, and higher oil prices. Ciana warned that a failure to hold the 7,504-7,500 support zone would mark a major technical breakdown, potentially opening an initial pullback to 7,314-7,294. Continued weakness would raise the risk of a deeper retracement toward the rising 200-day moving average around 7,200, or even a drop to the key 7,000 breakout area. At the core of this macro pressure is a "double squeeze" between interest rates and oil prices. According to BMO Capital Markets data, the one-month rolling correlation between nearby WTI crude oil and the 10-year Treasury yield has risen to 0.96, the strongest positive correlation since June 2019. As Middle East conflict pushes oil prices higher, the 10-year Treasury yield briefly rose above 5% on Monday, the first time since October 2023. Global X ETFs investment strategist Billy Leung noted that rising crude oil prices can lift inflation expectations, delay Fed rate cuts, and simultaneously raise discount rates for both equity and credit markets. Yardeni Research President Ed Yardeni said that if oil prices continue to rise, the Fed may not raise rates just once, but could hike two to three more times in the future, which would be a unsettling factor for the stock market. Rising Fed rate hike expectations make this macro pressure more urgent. CME FedWatch data shows the probability of a 25-basis-point Fed rate hike in September has reached 89%, more than doubling from 38% before the Jackson Hole central bank symposium in late August. Goldman Sachs has revised its forecast, shifting from previously expecting rates to remain unchanged to expecting a 25-basis-point hike in September, citing that with market-implied odds near 90%, a Fed hold would trigger sharp market volatility, a scenario the committee wants to avoid.