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The stock market showed a bullish technical indicator on Monday, according to Ned Davis Research.
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NDR strategist Ed Clissold noted that the market is in stage four of bottoming out as it approaches record highs.
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Since July, three broad bullish signals have emerged, indicating a strong market recovery.
The stock market just showed a bullish technical indicator that points to double-digit gains ahead. Standard & Poor’s 500 Over the next year.
That’s according to a note Wednesday from Ed Clissold, research strategist at Ned Davis, who said the stock market has entered the fourth stage of a bottoming process following the sell-off in early August.
The stock market fell more than 5% in early August amid a combination of risks, including a weak July jobs report, Yen trade liquidation and Warren Buffett reduces his stake in Apple.
But since then, the S&P 500 has risen about 10%, and is now just 1% away from its record high.
“The new impulse signals confirm that the market is in step four of the bottoming process and beyond the recent pullback,” Clissold explained, adding that the four stages of a stock market bottom are oversold, rally, retest, and breadth push.
On August 19, a new signal of oversupply emerged, which occurs when the stock market quickly moves from very few stocks participating in an uptrend to many stocks moving higher at the same time.
“The reason for this is that if some stocks are in trouble, other stocks can push the popular averages higher,” says Clissold. “The beginning of big moves is often marked by a spike in prices, or a very large percentage of stocks rising together.”
A broad-based rally was sparked on Monday when more than 90% of shares in NDR’s multiple-value stock series jumped above their 10-day moving average.
Since 1980, there have been 42 such instances, and stocks have been higher 95% of the time after one year with an average gain of 10%.
Such a gain from current levels would put the S&P 500 just above 6,100, roughly in line with One price target for Wall Street bulls in 2025.
Another rally occurred on August 8 when stocks experienced an “11:1 bull day,” which occurs when the trading volume of advancing stocks is 11 times the cumulative volume of declining stocks.
Ultimately, Clissold wants to see at least five broad-based push signals over a three-month period to be sure the stock market has more upside ahead.
So far, three signals have emerged since July 16, but even if two more don’t emerge by mid-October, stocks are likely to remain in good shape thanks to the expected decline in interest rates, according to the note.
“We may not get five bullish signals, but additional trend indicators are turning bullish. Lower interest rates are another drag on the bulls,” Clissold said.
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