TOMMY LEE, the head of research at Fundstrat, has outlined four significant indicators that suggest the stock market is experiencing a bullish reversal. In a recent update shared on Fundstrat’s YouTube channel, Lee highlighted key developments that support his optimistic outlook for the market.
Lee pointed to the activation of the Zweig Breadth Thrust on April 24th on the S&P 500 Index as the first indicator. “The Zweig Breadth Thrust is a technical gauge that helps identify the early stages of a potential bull market by comparing the 10-day moving average of advancing stocks to the total number of stocks listed,” he explained. He emphasized that this indicator has historically been a reliable precursor to market rallies. “Since 1978, this has occurred 11 times, consistently leading to increased stock performance after one month, six months, and one year,” Lee noted.
Secondly, Lee highlighted the narrowing of credit spreads as a positive signal for investor sentiment. He explained that the high-yield option-adjusted spread (OaS) saw a 50% retracement after its widening on April 23rd. “This is favorable because it indicates a retreat from the risk of recession. The spread between high-yield bonds and government bonds has nearly returned to its pre-April 2nd levels,” Lee said.
Thirdly, Lee referenced the S&P 500’s recent performance, noting that the index achieved two consecutive days of 90% of its stocks rallying. “This is a rare occurrence that has historically been followed by continued market gains,” he stated.
Finally, Lee highlighted the decline in the Volatility Index (VIX), which fell below the 31 level. “This suggests an upcoming reduction in market volatility and potential strength in equities,” he concluded.
Lee’s analysis aligns with historical patterns that have often signaled upward trends in the stock market.
Source: Fundstrat