InvestIdeas

Exit the stock rally now as the S&P 500 index could tumble about 22%, according to the chief market strategist at FS Investments.

The benchmark index is up about 8% so far in 2023 on hopes the Federal Reserve will soon end interest-rate increases.

"This is a golden opportunity to use this bear market rally to de-risk in advance of potentially very painful losses over the next six, nine, 12 months".

To Bank of America, any of these scenarios could mean upside for stocks:
1. An end to the Russia-Ukraine war
2. An increase of immigration in the US and ChatGPT's deflationary impact on the workforce
3. An arms race in Big Tech spending
4. No recession
5. Investors once again viewing stocks as a better alternative to bonds

Fundstrat's Tom Lee said that the market actually already told us a new bull market has started.
Lee said bearish investors are now "trapped" because the possibility of a downturn has already come and gone — and a key technical indicator just flashed.

"The S&P 500 has now spent more than 25 weeks above its 200-week moving average," Lee said. "Since 1950, there are zero instances of the S&P 500 making a new low once it has recovered above the 200-week moving average and spent at least 15 weeks there."

“When the VIX is high, it’s time to buy. When the VIX is low, it’s time to go.”

Whenever the VIX popped above 30 – it was a good time to buy stocks.

Whenever the VIX dropped below 20, the S&P declined almost immediately after.

But based on the history of this indicator – and with the calendar heading into May – investors should be extra careful here.

The odds favor a move lower.

His no-recession call is backed up by the fact that the economy has added nearly six million jobs over the past 15 months.

Seven bullish technical signals:-
1. Strong January, strong year
2. A big January after a down year
3. Staying above December low
4. Back-to-back quaterly gains
5. A strong first five days
6. Quarterly gains of more than 7%
7. Rare Zweig Breadth Thrust

1. Market sentiment is extremely bearish.
2. Recession is "very expected."
3. The Fed can ease up on interest rates.
4. There's trillions of dollars of "dry powder" on the sideline.
5. Cyclical stock sectors are purged.
6. The Japan Factory Automation Index hit a trough.
7. Equity risk premium should fall.
8. The economy will see productivity gains.
9 Earnings should be healthy.
10. The market is headed into historically strong-return quarters.

Stocks could be headed for a rally this summer, according to Bank of America

Analysts pointed to indicators that suggest the market will dip in May before rallying.

The S&P 500 could blow past its previous highs, potentially adding 5%, the bank said.

Three-month VIX versus the broader volatility index, which measures the three-month expected volatility of the stock market compared to the 30-day expected volatility, peaked below a ratio of 1.25, a level that typically precedes downside for stocks.

Dow Theory remains on an early 2022 sell-signal, but a December into March bullish divergence (a higher low for the Transports vs a lower low on the Industrials) and a shift to rising 200-day MAs on both the Dow Transports and Dow Industrials provide green shoots for this technical backdrop indicator that suggest buying a May dip for a summer rip" .

They say you should never short a dull market. The past week has been about as dull as any non-holiday week I can recall. So, traders should be careful on the short side.

It looks to me like the S&P 500 is gearing up to make one last big push higher.

As bearish as I am on the intermediate- and longer-term potential for the stock market, it looks to me like the odds favor the bulls this week.