As the curtain falls on 2023 and rises on the dawn of 2024, the stock market is poised for an impressive rally, fueled by a sequence of potent technical bull indicators. This forecast aligns with a note from Bank of America (BofA) released on a recent Tuesday.
BofA’s Projections for 2024
Stephen Suttmeier, BofA’s esteemed technical research strategist, underscores two particularly promising signals. These suggest a potential ascent of the S&P 500 to an impressive 4,900 by March 2024, a potential upswing of 19% from Tuesday’s closing figures.
Suttmeier parallels the S&P 500’s 2023 trend and other significant ‘wall of worry’ bullish turns witnessed in 2020, 2019, 2016, and 2012. He anticipates a similar trajectory for the coming year, driven by a number of bullish technical factors.
Technical Factors Driving the Market
“Bearish sentiment isn’t reflected in the market breadth. Depending on the specific indicator, market breadth ranges from stabilizing to positive,” Suttmeier explains. “Although volume indicators remain uninspiring, seasonality predicts a potential dip in May ahead of a summer surge. Credit spreads remain harmless and need to maintain this position for a summer rally.”
Suttmeier asserts that this favorable technical environment fosters a strong case for an elevated S&P 500 by the end of the year and into early 2024.
The Two Prominent Stock Market Bullish Signals
Suttmeier’s optimism is mainly centered on two key signals related to market breadth, which reflects the degree of participation in positive shifts among the stock market’s underlying securities.
The first signal is the positive shift in the weekly global advance-decline line for 73 country indices. Suttmeier states, “These upward breakouts usually indicate a bullish trend continuation for both US and global equity markets.“
This bullish indicator recorded a breakout in February, which, in Suttmeier’s view, “does not discount the possibility of the S&P 500 reaching 4,900 by February 2024.” Records show that an average and median gain of about 19% in the S&P 500 typically follows a global breadth breakout over one year.
The second signal lit up on March 31 when the New York Stock Exchange activated its 34th breadth thrust since 1930. This indicator is computed using a 10-day moving average of advancing stocks divided by the total of advancing and declining stocks. This calculation yields a percentage. The breadth thrust is activated when this percentage dips below 40% and then surges above 60% in 10 days or less.
Historically, the average and median one-year returns following the activation of the breadth thrust indicator are 18% and 21%, respectively. If the market follows this historical trend, the S&P 500 could be in the 4,800 to 4,900 range.
Other Bullish Indicators and Their Implications
In addition to these two main signals, the S&P 500 has seen a flurry of other bullish technical signals over the past few months. Coupled with favorable seasonality and positioning data, these indicators collectively suggest a good year ahead for the stock market.
Suttmeier concludes, “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 open the possibility of the S&P 500 reaching the 4,600s to
Continuing from Suttmeier’s predictions, the S&P 500 could potentially reach the 4,600s to the 4,900s range by February and March 2024. These figures are derived from the series of bullish signals the market has recently indicated.
The Role of Breadth in Market Trends
Market breadth, or the rate at which securities participate in market advances, has been a key factor in Suttmeier’s analysis. The breadth indicators, including the weekly global advance-decline line and the New York Stock Exchange breadth thrust, have historically proven to be reliable predictors of market trends.
The recent signals from these breadth indicators suggest a possible continuation of the bullish trend into 2024.
Seasonality, another factor in Suttmeier’s market prognosis, can also play a crucial role in market trends. For example, historical trends suggest that the stock market may experience a dip in May, but this could well be a precursor to a summer rally. This pattern, if repeated, could significantly contribute to the projected market upswing.