Investors are 'braced for Armageddon,' and stocks could soar 10% if they can overcome the never ending wall of worry

• The stock market could surge 10% as investors continue to climb a wall of worry, according to Bank of America.
• The bank said investors are "braced for Armageddon" amid a debt ceiling show down in Congress and extremely negative sentiment.
• "If their greatest fears do not materialize or get pushed deeper into the future, this would increase the risk for catch-up rally (aka FOMO rally)," BofA said.

The stock market looks poised to surge 10% from current levels as investors are "braced for Armageddon" amid an ongoing debt ceiling showdown and extremely negative investor sentiment and positioning, according to Bank of America.

In a Tuesday note, BofA technical analyst Stephen Suttmeier highlighted that stocks tend to "climb a wall of worry and slide on the slope of hope," and right now there's a lot more worry in the stock market than there is hope.

That's evidenced by the most recent AAII weekly investor sentiment survey, which shows that just 23% of survey respondents are constructive on stocks over the next six months, as well as leveraged funds aggressively shorting stocks at levels not seen in more than a decade.

Additionally, cash has flooded money market funds at record levels in recent months, with an all-time high of more than $5 trillion sitting on the sidelines.

"Sentiment, positioning and cash levels suggest underexposed investors who are braced for Armageddon. If their greatest fears do not materialize or get pushed deeper into the future, this would increase the risk for catch-up rally phase (aka FOMO rally)," Suttmeier said.

The current stock market environment reminds Suttmeier of episodes of worry seen in 2019 during the China-US trade war, 2016 during the Brexit and Trump election votes, and 2012 amid the eurozone debt crisis. And amid all those periods of intense worries held by investors, stocks ultimately resolved to the upside in a big way because the fears did not play out as many had thought they would.

That same scenario could play out this time around, and recent technical developments in the stock market support it, according to Suttmeier.

"The S&P 500 probed up to 4,213 on Friday before settling back into the 4,177 to 4,195 resistance zone. Resistance is intact, but if the S&P 500 breaks out, it would complete an early February into late May bullish cup-and-handle that suggests a FOMO rally to the August 2022 peak of 4,325 and perhaps to the pattern count at 4,580," Suttmeier said.

Additionally, Suttmeier highlighted that a bearish head and shoulders topping pattern that was developing in the S&P 500 over the past few weeks has failed, which is a good thing for bullish investors.

"The old market adage states that there is nothing more bullish than a failed head and shoulders top," Suttmeier said.