Investing.com -- Bank of America’s January barometer suggests a bullish outlook for the S&P 500 (SPX).
The stock market index concluded its first five trading sessions of 2025 in the green, rising 0.62%, which according to BofA, may be a bullish sign for the year ahead.
“Data back to 1928 suggests that SPX returns are stronger for the rest of the year when index rallies over the first five trading days of January,” BofA said in a Wednesday note. “When the first five sessions of the year are up, the year is up 70% of the time with an 9.2% average return.”
The average return for the remainder of the year after a positive start is 7.4%, with the index closing higher 64% of the time.
In the first year of the Presidential Cycle, such as 2025, the S&P 500’s initial performance appears even more promising. In such years, when the first five sessions record an uptick, the index has historically ended the year higher 79% of the time, with an average annual gain of 12.5%. The rest of the year typically sees a 6.2% return, with the index rising 64% of the time.
However, BofA’s analysis shows that the SPX has also exhibited a degree of volatility as it enters the new year. The index has managed to fill the upside gap created by the 2024 Presidential election, but it faces a potential head and shoulders top formation that could act as a technical overhang if it stays below the shoulder peaks ranging from 6017 to 6050.
“The 5700-5650 area offers the next support if the SPX moves below Monday’s low at 5773. The SPX moved below its daily Ichimoku cloud span, which offers resistance from 5886 to 5965,” BofA strategist Stephen Suttmeier explained.
Meanwhile, sentiment indicators have shown a tilt towards bearishness, with the spread between AAII Bullish Sentiment and AAII Bearish Sentiment reaching its lowest point since late 2023. However, the current sentiment levels may not yet indicate a market bottom as the 5-day and 25-day put/call ratios have not reached levels typically associated with oversold conditions.
Moreover, the 30-month VIX relative to the VIX has declined but has not fallen below the oversold threshold of 1.0.
Lastly, BofA points out a notable bearish divergence in the 14-week Relative Strength Index (RSI), a measure of momentum. The weakening of the weekly RSI, even as the SPX rallied, coupled with its failure to become overbought during the index's late 2024 all-time highs, is seen as a potential risk factor for the market in 2025.