A very rare bullish signal with a perfect track record just hit the stock market, suggesting another year of record highs.

• The NYSE McClellan Composite Index suggests strong stock market momentum.

• The signal is believed to have a perfect record when it flashes while the stock market is rising.

• It has flashed 28 times since 1962, with the S&P 500 averaging 15% returns a year later.

An upbeat signal emerging in the stock market this week for only the 29th time since the 1960s suggests a year of record highs is ahead.

Data from SentimentTrader indicates the NYSE McClellan Composite Index completed a cycle from below 100 to above 1,000, suggesting underlying stock market amplitude is strong.

The index is derived from the McClellan Oscillator, a closely watched indicator that measures stock market participation. The tool helps traders determine the underlying strength or weakness of a market trend.

Dean Christians, a senior research analyst at SentimentTrader, says the bullish signal is worth watching.

“Similar improvements in market breadth resulted in a 96% win rate over the next year,” Christians said in a note to clients on Tuesday.

But the signal has a perfect win rate when it flashes while the stock market is at or near record highs, as it did this week.

“Signals within 2% of a high never suffered a loss over the next two, six and twelve months,” Christians said.

SentimentTrader says this rare signal has only flashed 28 times since 1962, not including this week’s signal.

The last time it flashed was in December; since then, the S&P 500 is up about 20%.

Of the 28 cases, the S&P 500 delivered an average return of 5%, 9% and 15% over the next three, six and 12 months.

A 15% gain from current levels would send the S&P 500 to around 6,600 by this time next year, meaning many records are likely ahead if the signal plays out.

“Usually when stock indexes consolidate, as most have done since July, market width narrows as lagging moving averages or pivot points hit price,” Christians said. “However, that is not the case now as the breadth has remained firm and even improved by index or exchange.”

The improvement in market breadth in recent months is highlighted by the fact that the equal-weight S&P 500 index is trading at record highs and is up nearly 10% since July, while megacap growth stocks have remained nearly flat. in the same period.

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