This indicator suggests a huge market rally

The S&P 500 broke a five-day winning streak Tuesday morning as major U.S. stock indexes opened slightly lower. However, one technician says stocks are heading into a relief rally in the fourth quarter, based on data from one market indicator.

Ari Wald, head of technical analysis at Oppenheimer, said recent market sentiment has dropped drastically compared to early 2015. However, the tides look like they're about to turn.

"The market overshot to the downside here in its summer sell-off," Wald said Monday on CNBC's "Trading Nation." "Now that consensus on the market has kind of come around to the more pessimistic view, we think we're in a position where we swing the other way."

According to Oppenheimer's composite market sentiment measures, which use information from Investors Intelligence, Consensus Inc., Market Vane and the American Association of Individual Investors, 79 percent of the market was bullish in March. More recently, that positive sentiment has fallen to 31 percent, one of the lowest readings in several years, Wald said.


"Now that the market has stabilized, we've tested the low from August, we think we're in the position where we snap back the other way," Wald said. "We see a lot of contrarian firepower here."

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Wald said he sees the S&P 500 going back to its 200-day moving average of about 2,060, a 4 percent gain from where it closed Monday.

However, Neil Azous of Rareview Macro is less optimistic.

"As much as I think a chart is great ... I see no chart that says to me that this is a bounce that will keep going up here," Azous said in a phone interview Tuesday.

Azous said without improvement in credit spreads and corporate financing, stocks could see more downside in the fourth quarter. Because of a corporate financing gap, companies are having trouble issuing credit to refinance balance sheets, buy back stock and complete M&A transactions, he said.

"Until we see credit markets [improve], it's very difficult to think that the stock market bounce is any more than that," Azous said.

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Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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