• The inventory market may surge 10% as buyers proceed to climb a wall of fear, based on Financial institution of America.
• The financial institution mentioned buyers are “braced for Armageddon” amid a debt ceiling present down in Congress and very adverse sentiment.
• “If their best fears don’t materialize or get pushed deeper into the long run, this could improve the danger for catch-up rally (aka FOMO rally),” BofA mentioned.

The inventory market appears poised to surge 10% from present ranges as buyers are “braced for Armageddon” amid an ongoing debt ceiling showdown and very adverse investor sentiment and positioning, based on Financial institution of America.

In a Tuesday observe, BofA technical analyst Stephen Suttmeier highlighted that shares are likely to “climb a wall of fear and slide on the slope of hope,” and proper now there’s much more fear within the inventory market than there may be hope.

That is evidenced by the latest AAII weekly investor sentiment survey, which reveals that simply 23% of survey respondents are constructive on shares over the following six months, in addition to leveraged funds aggressively shorting shares at ranges not seen in additional than a decade.

Moreover, money has flooded cash market funds at file ranges in current months, with an all-time excessive of greater than $5 trillion sitting on the sidelines.

“Sentiment, positioning and money ranges counsel underexposed buyers who’re braced for Armageddon. If their best fears don’t materialize or get pushed deeper into the long run, this could improve the danger for catch-up rally section (aka FOMO rally),” Suttmeier mentioned.

The present inventory market atmosphere reminds Suttmeier of episodes of fear seen in 2019 throughout the China-US commerce battle, 2016 throughout the Brexit and Trump election votes, and 2012 amid the eurozone debt disaster. And amid all these intervals of intense worries held by buyers, shares finally resolved to the upside in an enormous approach as a result of the fears didn’t play out as many had thought they might.

That very same situation may play out this time round, and up to date technical developments within the inventory market help it, based on Suttmeier.

“The S&P 500 probed as much as 4,213 on Friday earlier than settling again into the 4,177 to 4,195 resistance zone. Resistance is unbroken, but when the S&P 500 breaks out, it could full an early February into late Could bullish cup-and-handle that implies a FOMO rally to the August 2022 peak of 4,325 and maybe to the sample rely at 4,580,” Suttmeier mentioned.

Moreover, Suttmeier highlighted {that a} bearish head and shoulders topping sample that was creating within the S&P 500 over the previous few weeks has failed, which is an efficient factor for bullish buyers.

“The previous market adage states that there’s nothing extra bullish than a failed head and shoulders high,” Suttmeier mentioned.

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