Strategic Insights: BofA’s Perspective on Sustained Overbought Conditions and S&P 500 Performance in 2024

BofA strategists emphasized that maintaining an overbought status is crucial for a robust performance in 2024. They stated, “A sustained overbought condition above -20 on the 28-month Williams %R signals a bullish outlook for the S&P 500 $SPX.”

When the Williams %R indicated overbought conditions, strategists observed that the S&P 500 has consistently recorded gains, showcasing a 100% success rate. The average and median returns during these periods were 19% and 16.8%, respectively, with the most significant decline being 10.8%.

BofA notes that this extended price momentum indicator entered overbought territory in November 2023 and remained in that state throughout December, January, and February. According to BofA, maintaining this prolonged overbought status “is pivotal for a robust performance in 2024.”

Conversely, BofA highlighted that years in which the S&P 500 starts the year in an overbought state but loses this status throughout the year tend to exhibit weaker and more unpredictable performance, particularly when the monthly Williams %R exits overbought territory for three months or longer.