QQQ - An Update On The Most Bullish Indicator Of Them All

2023-04-21 09:40:56 ET

Summary

• The bears think they have the upper hand, as the consensus is extremely negative.
• The problem is that this market is telling us it wants to go higher over the coming 3-9 months.
• One important indicator, which was triggered in January, says the probabilities of a bull market are extremely high.
• This is an update on its performance so far.

I have maintained a positive outlook for the economy, as in a soft landing, and the market, as in the birth of new bull, from the start of this year. So far, so good, as the expansion continues, and we are in sight of a bull market at 4,300 on the S&P 500 (SP500). Still, it is a constant challenge to maintain that stance, because it is very easy to get caught up in the daily minutia of the market, which is extremely negative.

There is a seemingly endless amount of ammunition for the crowd looking for a retest of the October lows, followed by a recession later this year. My resolve has been strengthened by numerous technical developments since the year started, but none have been stronger than the Breakaway Momentum buy signal that was triggered on January 12 when the S&P 500 closed at 3,983.

This indicator was crafted by esteemed technician Walter Deemer. It is rarely triggered because it requires the ratio of advancing to declining stocks on the NYSE to exceed 1.97 over a ten-day period. It has only happened 24 times since 1945, and January’s trigger made it 25. The forward returns for the S&P 500 have been higher 96% of the time in the 6- and 12-month periods after the buy signal was triggered. This is an update to what has transpired over the past three months since the trigger.

The shorter time frames, as seen in the chart above, have had lower probabilities of positive returns, but they are still impressive. As for the January trigger, here is where the numbers stand based on my calculations.

One week return was a negative 2.13%

Two week return was a positive 1.93%

One month return was a positive 2.46%

Two month return was a negative 1.63%

Three month return was a positive 3.06%.

Moving forward the probability of us seeing positive returns above the trigger at 3,982 over the next 3- and 9-month periods increases to 96%. There are no guarantees, but this gives me a lot of confidence that the soft landing scenario comes to pass with a bull market to boot. Based on the data and what has transpired, the bears are operating in a window that has been successful 4% of the time. It is not impossible, but not highly probable.

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