Bullish stock market signal points to double-digit gains for S&P 500 next year, research firm says

• The stock market posted a bullish technical indicator on Monday, according to Ned Davis Research.

• NDR strategist Ed Clissold noted that the market is in its fourth leg of a low as it nears record highs.

• Since July, three broad directional signals have flashed, indicating a strong market recovery.

The stock market just posted an upbeat technical indicator that suggests double-digit gains for the S&P 500 over the next year.

That’s according to a note Wednesday from Ned Davis Research strategist Ed Clissold, who said the stock market has entered the fourth stage of the bottoming process after the early August selloff.

The stock fell more than 5 percent in early August amid a confluence of risks, including a weak July jobs report, a weakening yen trade and Warren Buffett reducing his stake in Apple.

But since then, the S&P 500 is up nearly 10% and is just 1% away from record highs.

“The new broad push signals confirm that the market is in step four of the bottoming process and has moved past the recent pullback,” Clissold explained, adding that the four stages of an equity market are oversold, retracement, retest and width pulses.

On August 19, a new breadth bias signal flashed, which occurs when the stock market quickly switches from very few stocks participating in the rise to many stocks moving higher at the same time.

“The reasoning is that if a few stocks are struggling, others can propel the popular averages higher,” Clissold said. “The start of major moves are often marked by broadside pushes or an extremely high percentage of stocks rising together.”

A major push “triggered” on Monday, when more than 90% of stocks in NDR’s Multi-Cap domestic stock series jumped above their 10-day moving average.

Since 1980, there have been 42 such cases, and stocks were higher 95% of the time a year later, with an average gain of 10%.

Such a gain from current levels would put the S&P 500 at just over 6,100, which is roughly in line with a Wall Street bull’s 2025 price target.

Another big push flashed on Aug. 8, when stocks experienced an “11:1 day,” which occurs when the volume of advancing stocks is 11 times the cumulative volume of declining stocks.

Ultimately, Clissold wants to see at least five broad push signals flash in a three-month period to be sure the stock market has more upside ahead.

So far, three signals have flashed since July 16, but even if two more don’t flash until mid-October, stocks are likely still in a good position thanks to the expected decline in interest rates, according to the note.

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“We may not get five broad push signals, but additional trend indicators are becoming bullish,” Clissold said. “The rate cut is another check in favor of the bulls.”

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