BAML: We expect 19% growth for SP500 by the end of 2018

A monthly survey, conducted by Michael Hartnett from Bank of America Merrill Lynch shows that while the indicator of investment extremism has risen for a third consecutive month, it is still not big enough to show that there is a downward trend.

Indeed, when the so-called Sell side indicator was at this level in the past, it was followed by a 19% average return over the next 12 months. If we take this into account now, a $3,200 price for the SP500 at the end of the year is quite possible.

The chart shows to what extent investors have exaggerated their stock purchases. When the indicator (dark blue line) climbs above the red line, we can look for Short signals on the market.

As you can see, the market is currently far from the levels of extreme purchases. Also, while buy and sell signals applied to the Sell Side Indicator are calculated based on a 15-year average, the picture becomes much clearer if you shorten this time frame.

In October, BAML pointed out that an alternative methodology, based on four years, signaled the sale of the S & P500. And although this signal did not materialize, the company has long advocated staying hedged against some unexpected shock.

Source: Bank Of America Merrill Lynch

Jr Trader Petar Milanov

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