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“Several rules-based technical indicators have triggered bullish backdrop signals since the September and October lows on the SPX. Projected average and median returns for these signals suggest a higher SPX into yearend and 1Q 2024,” the analysts said in a client note.
They highlight both cyclical and secular technical indicators that are bullish for the S&P 500 while rejecting the notion that the breadth is bearish.
“Depending on the indicator, market breadth is stabilizing to positive. Volume indicators are lackluster. Volume equals conviction, and sentiment, positioning and cash levels suggest that bulls are an endangered species. Seasonality suggests a May dip ahead of a summer rip. Credit spreads are benign and need to stay on vacation for a summer rally,” they added.
The analysts add that mega-cap leadership doesn’t mean bearish breadth. This is contrary to the opinion of BTIG’s technical analysts, who argue that breadth and credit could send the S&P 500 below 3800 in the coming weeks.
“We think the 3800-4200 trading range call is much more consensus now, and if it’s going to definitively break out of this range, our view remains a breakdown is more likely than a breakout,” they said in a note to BTIG’s clients today.
Back to BofA’s analysis, which highlights 4195 in the S&P 500 as a key level to watch.
“The bullish January Barometer points to SPX 4330s to 4430s into yearend. Presidential Cycle Year 3 is the strongest year of the Presidential cycle and suggests SPX 4350 to 4500s into yearend. 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 (MA) do not rule out SPX 4600s to SPX 4900s into February and March 2024,” BofA analysts concluded.
