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Market gets an upgrade from top strategist, says a lot of the worst news is over

This indicator suggests much of the worst news is behind the market

A top strategist is becoming more positive on stocks.

Ned Davis Research's Ed Clissold, who turned cautious on March 10, upgraded his six-to-12-month market view to neutral last week.

"The market tends to lead the economy," the firm's chief U.S. strategist told CNBC's "Trading Nation" on Thursday. "An average of four months before the end of recessions is when the S&P 500 bottoms. So, if you look out a few months and think things will be getting a little bit better, stocks should anticipate that."

Clissold sees unprecedented fiscal and monetary policy serving as a backstop for stocks, and prevalent pessimism among investors, which is often a contrary indicator of strength, as encouraging signs.

His decision to lift his outlook also had to do with market breadth, or the number of stocks moving together.

"There has been clear improvement in the tape action," added Clissold. "It tells you a lot of the worst news is behind you."

The S&P 500 has soared almost 28% since its March 23 low — despite a challenging earnings season and disappointing economic data.

Due to the strong move, Clissold believes investors shouldn't get too comfortable with the recent gains.

"We think there are going to be pullbacks when some of this bad news comes out," he said. "But we're saying is enough has improved to have a little bit better outlook."

Ultimately, Clissold sees offensive areas getting a bid once coronavirus cases materially fall and the economy turns a corner.

"You tend to get a rotation out of defensives and into cyclical areas," Clissold said. "Haven't seen it yet, but when that happens ... small-cap stocks, financials and industrials will be some of our favorite areas."


Why one top strategist just upgraded his market forecast