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According to Ned Davis Research, the stock market delivered a positive technical indicator on Monday.
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Ed Clissold, strategist at NDR, noted that the market is in the fourth phase of the bottom and approaching record highs.
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Since July, three broadside signals have been issued, indicating a strong market recovery.
The stock market just showed a positive technical indicator that suggests the S&P 500 could post double-digit gains over the next year.
That’s according to Ed Clissold, strategist at Ned Davis Research, in a note on Wednesday. He said the stock market has entered the fourth phase of the bottoming process after the sell-off in early August.
The stock market fell more than 5% in early August on a confluence of risks including a weak July jobs report, a unwinding of the yen carry trade and Warren Buffett cutting his stake in Apple.
But since then, the S&P 500 has risen nearly 10% and is now just 1% below record highs.
“New broadside signals confirm that the market is in step four of the bottoming process and has moved past the recent pullback,” Clissold explained, adding that the four stages of a stock market bottom are: oversold, rally, retest and broadside.
On August 19, a new broadside signal was issued. This signal occurs when the stock market quickly goes from a small number of stocks rising to a large number of stocks rising at the same time.
“The reasoning 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 broadsides, or an extremely high percentage of stocks coming together.”
A boost was provided on Monday when more than 90% of stocks in NDR’s internal Multi-Cap Equity Series rose above their 10-day moving averages.
Since 1980, there have been 42 such cases and in 95% of the cases, stock prices were higher a year later, with an average gain of 10%.
Such a rise from current levels would take the S&P 500 just above 6,100, roughly in line with a Wall Street bull’s 2025 price target.
Another broadside surge was seen on August 8 when the stock experienced an “11:1 rise day,” which occurs when the volume of rising stocks is eleven times the cumulative volume of falling stocks.
Ultimately, Clissold wants to see at least five broadside signals in a three-month period to ensure the stock market can continue to rise.
Three signals have been issued so far since July 16, but even if two more signals are issued by mid-October, stocks are likely still in a good position thanks to the expected drop in interest rates, the note said.
“We may not get five broadside push signals, but additional trend indicators are turning bullish,” Clissold said. “Falling rates are another check in favor of the bulls.”
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