The market has been on the rebound for the past month, and a couple of indicators suggest there’s more room to run.
Although the S&P 500 (^GSPC) is still down for the year, the index has had a 5% bounce over the past month and is nearly 12% above its 2016 lows. Mark Newton, founder of Newton Advisors, sees more upside in the weeks ahead.
Newton notes that the advance-decline line, which charts the adjusted net amount of advancing stocks on the New York Stock Exchange, has snapped back into the 9,800 range. Several weeks ago, it had fallen below 9,000 to its lowest level in three years.
“This is what's known as a failed breakdown,” said Newton. “It means likely that we're going to have a little bit further to go on the upside.”
Newton also sees importance in the percentage of stocks above their 200-day moving average. That number is roughly 45%, the highest it has been since the summer of last year.
“It suggests that the market certainly has had more of a breadth thrust in these last four weeks,” said Newton. “Despite the fact that people are bearish to some extent, sentiment remains remarkably subdued.”
Newton expects the rally to broaden with more participation by the financial, technology, and healthcare sectors.
“Despite the fact we've gotten a bit higher –12% off the lows in a short period of time, my thinking is that we still are going to find a way to press higher into late spring before any pullback ensues,” he said.