If a correction strikes, Canaccord’s Tony Dwyer says this ‘monster buy signal’ could erase losses

One of Wall Street's most bullish forecasters is out with a near-term correction call, but he's not letting it interfere with his 2018 bull case for stocks.

Canaccord Genuity's Tony Dwyer is putting his faith in a historical trend that typically points to gains.

"What we found is when the yield curve is flattening, it's actually a monster buy signal," the firm's chief market strategist said on CNBC's "Trading Nation" this week.

Dwyer, who entered 2017 as Wall Street's most bullish strategist, believes the S&P 500 Index will end this year at least 10 percent higher from current levels.

"The thing in this environment is: There are no negative divergences. The advance-decline line is making new highs. It's a pretty broad move," he noted.

"You haven't even inverted the yield curve. Credit is still on fire, the fundamental backdrop is terrific and earnings are going up. That creates an environment for ultimate upside," Dwyer added.

But with sentiment in the stock market so strong, Dwyer predicts getting there could get "a little sloppy."

"I don't think you have to qualify" a correction as a 10 percent drop, he said, referencing the term's commonly accepted definition. "But I certainly think that you will correct more than we did last year," he said — adding that he can't specifically identify what could push stocks lower.

For now, the market has been on fire. The S&P 500 just completed its best 10-day start to a year in 15 years. Plus, the Dow now has three 200 point gains this year. There were only six of them in all of 2017.

"You don't need to chase the market, but you better be ready when it dips," Dwyer said.

And if that happens, Dwyer sees financials, industrials and information technology as the big winners.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

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.

Follow Michael Santoli on Twitter @michaelsantoli

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