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The stock market flashed a bullish technical indicator on Monday, in keeping with Ned Davis Research.
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NDR strategist Ed Clissold noted the market is its the fourth stage of bottoming because it approaches record highs.
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Since July, three breadth thrust signals have flashed, indicating a powerful market recovery.
The stock market just flashed a bullish technical indicator that means double-digit gains are in store for the S&P 500 over the following yr.
That is in keeping with a Wednesday note from Ned Davis Research strategist Ed Clissold, who said the stock market has entered the fourth stage of its bottoming process following its early August sell-off.
The stock market fell greater than 5% in early August amid a confluence of risks, including a weak July jobs report, a yen carry-trade unwind, and Warren Buffett slashing his stake in Apple.
But since then, the S&P 500 has rallied nearly 10% and is just 1% shy of record highs.
“Latest breadth thrust signals confirm that the market is in step 4 of the bottoming process and moving past the recent pullback,” Clissold explained, adding that the 4 stages of a stock market bottom are oversold, rally, retest, and breadth thrusts.
On August 19, a latest breadth thrust signal flashed, which occurs when the stock market swiftly transitions from only a few stocks participating within the upside to many stocks moving higher at the identical time.
“The rationale is that if a number of stocks run into trouble, others can propel the favored averages higher,” Clissold said. “The start of major moves is usually marked by breadth thrusts, or an especially high percentage of stocks rallying together.”
A breadth thrust “fired” on Monday when over 90% of stocks in NDR’s internal Multi-Cap Equity Series jumped above their 10-day moving average.
Since 1980, there have been 42 such instances, and stocks were higher 95% of the time one-year later with a mean gain of 10%.
Such a gain from current levels would put the S&P 500 at just above 6,100, which is sort of in-line with one Wall Street bull’s 2025 price goal.
One other breadth thrust flashed on August 8 when stocks saw an “11:1 up day,” which occurs when volume in advancing stocks is 11 times that of the cumulative volume in declining stocks.
Ultimately, Clissold desires to see a minimum of five breadth thrust signals flash in a three-month period to make certain that the stock market has more upside ahead.
Up to now three signals have flashed since July 16, but even when two more don’t flash by the center of October, stocks are likely still in a very good spot because of the expected decline in rates of interest, in keeping with the note.
“We may not get five breadth thrust signals, but additional trend indicators are turning bullish,” Clissold said. “Falling rates are one other check within the bulls’ favor.”
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