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Successful indicator predicts big rally again

Traders work on the floor of the New York Stock Exchange.
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Traders work on the floor of the New York Stock Exchange.

At the beginning of October, CNBC Pro covered the Bank of America Merrill Lynch "Sell Side Indicator's" prediction of an 18 percent rally. The S&P 500 then surged 8 percent in October, the best month in four years.

And now, even after October's ramp, the same indicator is still predicting a big move over the next 12 months, according to a note to clients on Monday.

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

"The Sell Side Indicator is based on the average recommended equity allocation of Wall Street strategists as of the last business day of each month. We have found that Wall Street's consensus equity allocation has historically been a reliable contrary indicator. In other words, it has historically been a bullish signal when Wall Street was extremely bearish, and vice versa."

Contrary indicators rely on climbing the proverbial "wall of worry." When there is a negativity against the market from pessimism and high cash levels, it can actually be a positive setup for equities.

If the economy outperforms expectations, fund managers will be forced to buy more stocks and strategists will be compelled to increase their equity allocation targets, driving the market higher.

Here are the details of the indicator's current level and the latest 12-month total return prediction...

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