A rare and potent market indicator has flashed a bullish signal, hinting at a potential year of unprecedented gains for the stock market. This signal, which has only appeared 29 times since the 1960s, is derived from the NYSE McClellan Summation Index, a closely watched metric that gauges the underlying strength of market trends.
Historical data reveals that this signal boasts an impressive 96% success rate over the subsequent 12 months, with the S&P 500 averaging returns of 15% during that period. Moreover, when this signal appears while the market is at or near record highs, as it is currently, the success rate jumps to a perfect 100%. In such instances, the S&P 500 has consistently delivered substantial gains over the next two, six, and 12 months.
The last time this signal flashed was in December, and since then, the S&P 500 has surged by approximately 20%. If this signal plays out as it has in the past, the S&P 500 could reach unprecedented heights of around 6,600 by this time next year.
The resilience of market breadth is a key factor behind this signal’s strength. Unlike typical market consolidations, where breadth tends to weaken, the current environment has seen breadth remain firm and even improve in certain indices and exchanges. This is evident in the equal-weight S&P 500 index, which has reached record highs and gained nearly 10% since July, while mega-cap growth stocks have remained relatively flat over the same period.
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