Investing.com -- Bank of America (NYSE:BAC) analysts are forecasting a potential short-term dip in the S&P 500 despite bullish December seasonality and the likelihood of a rally to the 6180s.
The bank said that the immediate pattern remains positive, supported by key support levels at 6025-5985. However, the analysts note a tactical risk of a dip due to signals from the Demark indicators.
"A daily Demark 9 on 12/4 and a daily Demark 13 on 12/5 suggest tactical upside exhaustion on the SPX, increasing the risk for a dip ahead of the bullish late December into January Santa Claus rally period," the bank wrote.
"These tactically bearish signals remain intact below Demark risk levels at 6063 and 6116. Last week's Demark 13 is also a risk for the SPX that remains in place below 6167."
BofA warns that the S&P 500 could face a pullback before the typical bullish "Santa Claus" rally period at year-end. If the SPX falls below key levels at 6063 and 6116, the risk for a dip increases.
Despite this caution, the long-term outlook is said to remain strong, with strong breadth supporting further market growth.
Additionally, BofA expects sentiment to continue rising as individual investors' bearish positions are being challenged, which could further fuel the rally.
However, they believe there is still room for sentiment to grow before becoming excessively bullish, allowing the S&P 500 to continue its upward momentum, barring significant risks.
The report also points to strong leadership in growth stocks, suggesting that mega-caps could experience a "1990s-style melt-up" compared to large-cap stocks in the near future.