Why the rally in US stocks is starting to emerge as a new bull market, according to these analysts

A broader range is better when it comes to a stock market rally and some analysts are seeing technical signs that gains could signal the end of the bear market for 2022, although it’s too soon to be certain.

The risk that the recent advance is just a bear market rally has not been eliminated. Ed Clesold and Tan Nguyen of Ned Davis Research said in a note on Tuesday…

Technical analysts pay close attention to various measures of market amplitude – or the number of shares involved in an upward or downward movement.

Clissold and Nguyen note that the rally following Federal Reserve Chairman Jerome Powell’s July 27 press conference has produced a pair of rare signals of “trend broadening”: First, the percentage of stocks hitting new 20-day highs rose above 55% for the first time. since then. June 2020 Second, the ratio of 10-day advances to 10-day lows rose to 1.9 for the first time since 2021. The moves came after a 10:1 day rally for S&P 500 shares earlier in July.

S&P 500 SPX Index,
+ 1.74%
As of Tuesday’s close, it had risen nearly 12% from its low on June 16 after the main index confirmed its fall into a bear market in June. The S&P 500 rose 1.6% on Wednesday, while the Dow Jones Industrial Average DJIA,
+ 1.43%
It rose about 450 points, or 1.4%.

Broad trend indicators are designed to be rare, but the growing role of exchange-traded funds, algorithmic trading and other factors have increased their frequency in the past 13 years, analysts noted. Clissold and Nguyen said they still provide useful signals but require a “trust but verify” approach.

As for recent moves, they note that previous rallies off March and May lows led to two other expansive nudges each. “The fact that each of the three benchmarks launched in July was no earlier than 2022 is a noteworthy change,” the analysts wrote.

Naturally, those earlier gatherings proved to be head fakes. This means that the urgent question for investors is whether the recent gains are just another gain in a series of failed rallies in a cyclical bear market or the early stages of a new bull market, analysts acknowledge.

They find that three indicators – the percentage of shares at new highs in 21 days, the percentage of shares at new highs in 63 days, and the percentage of shares above 50-day moving averages – are above not only bear market averages, but new bull market averages as well. .

Clissold and Nguyen said the NDR’s “Big Mo Tape,” a measure of the percentage of sub-industry in bullish trends, lies between the average bearish rally and the average new bull market.

In general, the current market setup tracks the technical improvement seen after the declines in 2009, 2011 and 2016, but is stronger than the start of many bull markets from the late 1980s through the early 2000s by most broad metrics, they said.

Analysts said the Big Mo bar is the bar to watch for additional technical confirmation. They wrote that the continued rally in the coming weeks would see it join other technical metrics in being “clearly more consistent with a cyclical bull than with a bear market rally.”

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