There is no shortage of analysts who see the recent market rebound as another doomed bear market rally, but the breadth of the advance looks increasingly healthy. Stocktake previously noted that one indicator to look out for was the percentage of S&P 500 stocks hitting one-month highs.

Whenever that number exceeds 55 per cent, stocks have historically gone on to advance over the following year. Last week, it exceeded the 55 per cent level for the first time since June 2020, indicating this is an increasingly broad and high-conviction rally. Other breadth indicators confirm this picture. Ned Davis Research strategists note that the percentage of stocks trading at three-month highs and the percentage of stocks trading above their 50-day moving averages is higher than typical levels seen during bear market rallies. In fact, the current numbers are even higher than that seen in a typical bull market rally.

The speed of the turnaround, too, is encouraging. In June, fewer than 5 per cent of S&P 500 stocks traded above their 50-day moving average, compared to 75 per cent last week. Historically, these kinds of turnarounds have been followed by year-long gains every single time, according to SentimenTrader research. The possibility that this is merely another bear market rally hasn’t been “eliminated”, concludes Ned Davis Research, but it looks technically healthy thus far and is “more akin to a new cyclical bull market than a bear market rally”.