Bank of America Analysts Forecast Potential S&P 500 Dip

Bank of America analysts predict a short-term dip in the S&P 500, despite the typically bullish December seasonality and a potential rally into the 6180s.

The immediate market pattern appears positive, bolstered by support levels at 6025-5985. However, tactical risks of a dip are evident from Demark indicators.

> “A daily Demark 9 on 12/4 and a daily Demark 13 on 12/5 signal tactical upside exhaustion on the SPX, raising the chance of a dip before the bullish late December Santa Claus rally,” the bank noted.

The analysts emphasized that bearish signals remain relevant below Demark risk levels at 6063 and 6116. Last week’s Demark 13 also poses a risk for the SPX if it stays below 6167.

BofA cautions that the S&P 500 may experience a pullback before the expected bullish “Santa Claus” rally period. Should the SPX drop below key levels of 6063 and 6116, the dip risk intensifies.

Nevertheless, the long-term outlook remains positive, with strong market breadth likely to sustain growth.

Furthermore, BofA anticipates rising sentiment among individual investors, which could support the rally as bearish positions are challenged. They see potential for sentiment growth before becoming excessively bullish, enabling continued upward momentum for the S&P 500 barring significant risks.

The report highlights strong leadership among growth stocks, suggesting that mega-cap stocks might see a “1990s-style melt-up” compared to large-cap stocks in the upcoming future.