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According to Ned Davis Research, the stock market showed a bullish technical indicator on Monday.
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NDR strategist Ed Clissold noted that the market has reached the fourth stage of bottoming and is approaching record highs.
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Since July, three breadth signals have appeared, indicating a strong market recovery.
The stock market just showed a bullish technical indicator that suggests double-digit gains are in store S&P500 during the following year.
That’s according to a note from Ned Davis Research strategist Ed Clissold, who said the stock market has entered the fourth phase of bottoming after the sell-off in early August.
The stock market fell more than 5% in early August due to a confluence of risks, including a weak jobs report in July, a The yen’s carry trade is diverging, And Warren Buffett has reduced his stake in Apple.
But since then, the S&P 500 has risen nearly 10% and is just 1% away from record highs.
“New signals from the breadth rise confirm that the market is in step four of the bottoming process and has moved past the recent pullback,” Clissold explains, adding that the four stages of a stock market bottom are oversold, rally, retest and breadth rise .
On August 19, a new breadth signal flashed, which occurs when the stock market quickly transitions from a very small number of stocks participating in the uptrend to many stocks rising at the same time.
“The rationale is that if a few stocks get into trouble, others can push the popular averages higher,” Clissold said. “The beginning of big moves is often marked by broadside bursts, or an extremely high percentage of stocks uniting.”
There was a ‘breadth surge’ on Monday when more than 90% of stocks in NDR’s internal Multi-Cap Equity Series jumped above their 10-day moving average.
There have been 42 such cases since 1980, and a year later, stocks were higher 95% of the time, with an average gain of 10%.
Such a gain from current levels would put the S&P 500 just above 6,100, almost in line with one Wall Street price target for 2025.
Another broadside boost occurred on August 8, when stocks had an “11:1 day up,” which occurs when volume in rising stocks is eleven times the cumulative volume in falling stocks.
Ultimately, Clissold wants to see at least five breadth signals flash within a three-month period to ensure the stock market has more upside potential.
So far, there have been three signals since July 16, but even if two don’t appear by mid-October, stocks are likely still in a good place thanks to the expected drop in interest rates, the note said.
“We may not get five width signals, but additional trend indicators are turning bullish,” Clissold said. “Falling interest rates are a new brake in the bulls’ favor.”
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