US Stocks Rebound This Summer, Attracting Investors Who Watch Charts

Stocks in the U.S. are rebounding, bolstering the outlook for equities in the second half of 2022, according to investors who study the stock market research trends.

Despite the Federal Reserve raising interest rates to tame inflation, the S&P 500 has bounced 15% from its mid-June low, fueled by strong corporate earnings and hopes of avoiding a recession.

There have been short-lived rallies in stocks this year, and many market participants believe it is too early to be optimistic. Despite the fact that the Federal Reserve is striving to bring down inflation, officials have emphasized that there is still much work to be done. During the symposium in Jackson Hole, Wyoming, which is expected to take place next week, they will likely push back against expectations of a dovish monetary policy pivot, one narrative that has helped stocks rise in recent months.

A streak of four straight weekly gains ended on Friday when the S&P 500 fell about 1.29%.

Even so, those using market phenomena such as breadth, momentum, and trading patterns to help guide their investment decisions see a more optimistic picture and are growing more confident that equities’ recent gains will not be reversed.

According to Willie Delwiche, an investment strategist at market research firm All Star Charts, several indicators suggest the June low is more durable than the May or March low. “At this point, it’s a rally to lean into, not one to fear.”

This includes measures that show the “breadth” of a market move, or whether a significant number of stocks are rising or falling at the same time. Several investors were concerned when the breadth of the market narrowed late last year. This was followed by a 21% decline in stocks across the S&P 500 during the first half of 2022.

It has reversed recently. For the first time this year, the number of new highs on the New York Stock Exchange and Nasdaq exceeded new lows – an encouraging sign for Delwiche and other strategists.

In order for a rally to be sustained, a large percentage of stocks must rally together, according to Ed Clissold, chief U.S. strategist at Ned Davis Research. As some indicators turned positive, the firm increased its recommended exposure to U.S. equities from “underweight” to “neutral.”

In addition, 90% of S&P 500 stocks are above their 50-day moving average. As a result of the signal, the S&P 500 has gained an average of 18.3% in the year following the 90% threshold, according to Bespoke Investment Group data.

The probability of us being higher in a year is much higher with that flashing,” said Todd Sohn, a Strategas technical strategist.

The momentum of a market that is galloping higher also tends to last. The S&P 500 has gained 15.3% over the next year after rising 15% or more within 40 trading days, Delwiche reported.

As the S&P 500 recovered 50% of its bear market price decline earlier this month, one important technical indicator was hit. Sam Stovall, chief investment strategist at stock market research, says the index has not made a new low after such a move since World War Two.

More gains are not supported by some indicators. According to analysts at BofA Global Research, stocks bottom when inflation and trailing price/earnings are less than 20. According to a bank statement on Wednesday, that number is currently 28.5.

Meanwhile, the Treasury yield curve typically steepens around market bottoms, according to Strategas’ Sohn. Short-dated bonds have higher yields than longer-dated bonds, a sign that has preceded recessions in the past.

The market is already up above Citi strategists’ year-end target of 4,200, so tactically selling into strength is justified,” Citi strategists wrote earlier this week.

In fact, the S&P 500 has marked new lows following three previous bounces this year.

Delwiche, of All Star Charts, believes this move will be different.

As he said, “Strength tends to breed strength.

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