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Pro Analysis

Successful Merrill Lynch contrarian indicator predicts 19 percent rally ahead

Traders work on the floor of the New York Stock Exchange (NYSE) on November 22, 2016 in New York City.
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Traders work on the floor of the New York Stock Exchange (NYSE) on November 22, 2016 in New York City.

Despite investors' enthusiasm over the pro-growth economic policies of President-elect Donald Trump, the average recommended allocation to equities by Wall Street pundits remains well below normal, a contrarian indicator that could pay off for those willing to bet against the crowd, according to Bank of America Merrill Lynch.

The firm's "Sell Side Indicator" predicts a 19 percent increase in the S&P 500 over the next 12 months. In the past 30 years, the signal had a success rate greater than 90 percent, according to the bank.

Equity and quant strategist Savita Subramanian explains how the "Sell Side Indicator" works: