This stock market milestone indicates the S&P 500 could be up to 16% higher in a year from today

More technical indicators are emerging to suggest that the broad summer rebound in stocks could be the start of something bigger.

Over the past few trading sessions, technical analysts have been faced with a number of indicators related to “market breadth” that could point to further gains.

For starters, the number of S&P 500 stocks trading above their 50-day moving averages hit 93% on Friday — the highest level since June 2020, according to Dow Jones Market Data. On Monday, the number of S&P 500 stocks closing above this level was 90.7%.

See: Why the US stock rally looks more like a new bull market than a bearish bounce to these analysts

This is important because over the past few decades, once the number of S&P 500 stocks trading above their 50-day moving average exceeded 90%, the market was almost always higher a year later. usually substantially.

On average, after hitting this market breadth milestone, the S&P 500 continued to gain, on average, more than 16% over the next 12 months. However, short-term returns have been a bit more volatile.

Source: Dow Jones Market Data

“Every major market trough in the past 50 years or so has been marked by this metric crossing the 90% threshold,” said Todd Sohn, managing director of technical strategy at Strategas.

“In the short term, your returns can be a bit hit or miss. But returns over the next six to 12 months are historically above average with very high positive success rates – something in the 80% to 90% zone of the time,” he added.

Additionally, market techs have also taken note that the Invesco S&P 500 Equal Weight RSP ETF,
+0.22%
closed above its 200-day moving average on Friday for the first time since April – another sign that the stock market rally has been encouragingly broad-based.

So-called “secondary” indicators like market breadth are important for market technicians because they allow them to look “under the hood” and better understand the quality of a given market trend, said strategist John Kosar. Chief Market Officer at Asbury Research.

“I’m focusing more on those internals now, because if all you’re looking at is the price, then all you’re doing is chasing your tail. I want to see the quality of those moves, not just their size,” Kosar said.

In a research note sent to clients on Monday, Kosar noted that a number of key stocks, exchange-traded funds and indices have all either exceeded their 200-day moving average over the past few trading days. , or are extremely close to it.

He cited this as another strong example of market breadth, but added that the rally in equities has become somewhat overdone – meaning a pullback could be in store over the coming weeks.

Some of the names cited by Kosar include: Amazon.com Inc. AMZN,
-0.26%,
MicrosoftMSFT,
+0.53%,
the Dow Jones Industrial Average DJIA,
+0.45%,
RUT Russell 2000,
+0.23%,
the Philadelphia Stock Exchange Semiconductor Index SOX,
+0.31%,
the SPDR Portfolio S&P 1500 Composite Stock-Market ETF SPTM,
+0.40%
and the Dow Jones Transportation Average DJT,
-0.32%.

“All of these big market-leading stocks and averages are testing the averages at the same time,” Kosar said, adding that this is another example of just how big the market is changing.

Of course, a strong market breadth does not mean that different sectors of the market have equally strong returns. Since shares hit a year low in June, growth names like Amazon AMZN,
-0.26%,
Parent alphabet of Google GOOGL,
+0.33%
and Netflix NFLX,
-0.08%
outperformed – as did the ARK Innovation ETF ARKK,
+0.35%,
and cryptocurrency-related stocks like Coinbase Global Inc. COIN,
+1.64%
and Microstrategy Inc. MSTR,
-1.07%.

Still, the growth and value factors are significantly higher over the past month. And on Monday, the S&P 500 SPX,
+0.40%
and Dow Jones Industrial Average DJIA,
+0.45%
hit their highest closing levels since May, while the Nasdaq Composite COMP,
+0.62%
recorded its best close since April.

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