There are two bullish signals that suggest the stock market could trade to record highs by early next year.
BofA says a bullish breakout in global breadth means the S&P 500 could surge 19% from current levels.
“Bullish technical backdrop signals support the case for a higher S&P 500 into year-end and early 2024,” BofA said.
The stock market is setup for a strong rally into the end of the year and in early 2024 as a slew of technical bull signals are triggered, according to a Tuesday note from Bank of America.
BofA’s technical research strategist Stephen Suttmeier specifically highlighted two bullish signals that suggest the S&P 500 could rise to 4,900 by March 2024, representing potential upside of 19% from Tuesday’s close.
“This 2023 trend for the S&P 500 is like other ‘wall of worry’ bullish turns in 2020, 2019, 2016 and 2012,” Suttmeier said before listing off a list of bullish technical factors that should help drive the stock market higher in the year ahead.
“Breadth is not bearish. Depending on the indicator, market breadth is stabilizing to positive. Volume indicators are lackluster… Seasonality suggests a May dip ahead of a summer rip. Credit spreads are benign and need to stay on vacation for a summer rally,” Suttmeier said. “Bullish technical backdrop signals support the case for a higher S&P 500 into year-end and early 2024.”
The two specific signals that suggest to Suttmeier that the S&P 500 could trade above 4,900 by early next year center around breadth, or the rate of participation in upside moves among the underlying security issues of the stock market.
“Upside breakouts for the weekly global advance-decline line of 73 country indices tend to provide a bullish trend continuation signal for US and global equity markets,” Suttmeier said.
This bullish indicator triggered a breakout in February, and that “does not rule out S&P 500 4,900 into February 2024,” Suttmeier said. Forward one-year returns after global breadth broke out has led to average and median gains in the S&P 500 of about 19%.
A second signal flashed on March 31 when the New York Stock Exchange triggered its 34th breadth thrust since 1930.
The indicator is calculated by taking a 10-day moving average of the number of advancing stocks divided by the number of advancing stocks plus the number of declining stocks. The calculation derives a percentage, and when it falls below 40% then surges above 60% in 10 days or less, the indicator is triggered.
The average and median forward one-year returns after the breadth thrust indicator are 18% and 21%, respectively, which if similar returns materialize this time around, would send the S&P 500 into the 4,800 to 4,900 range.
And that’s not all, various other bullish technical signals have triggered in the S&P 500 over the past few months, and combined with favorable seasonality and positioning data, they all suggest a higher stock market over the next year.
“Bullish signals from the golden cross, net tab, Farrell sentiment, the weekly global advance-decline line, NYSE breadth thrust and the cross above the 12-month moving average do not rule out the S&P 500 4,600s to S&P 500 4,900s into February and March 2024,” Suttmeier said.
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