A two-month gain of 19 per cent may seem unsustainable, but multiple indicators continue to suggest this is a healthy market rally.
Strategists tend not to trust narrow market rallies. It’s good news, then, that this has been an exceptionally broad affair, with almost all stocks participating in the rally. Last week, 92 per cent of S&P 500 stocks were trading above their 50-day moving average.
That’s a significant number – according to Todd Sohn of Strategas, every major market low over the past 50 years has been marked by that metric exceeding the 90 per cent level.
Incredibly, less than 1 per cent of stocks were trading above their 50-day average just two months ago.
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Rob Hanna of Quantifiable Edges found 17 previous instances where stocks enjoyed a huge and rapid breadth reversal. Three, six and 12 months later, stocks were higher on every single occasion. Average and median returns, too, were much stronger than usual.
The extent of the market gains is also noted by All-Star Charts’ Willie Delwiche, who looked for past instances where the S&P 500 gained at least 15 per cent in just two months. Returns over the following three-, six- and 12-month periods were well above average. As Delwiche concludes, “strength begets strength”.
