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Fundstrat\u2019s head of research Tom Lee says there are four big signs backing up the idea that the stock market is in the midst of a bullish reversal.<\/p>\n
In a new video update on Fundstrat\u2019s YouTube channel, Lee starts off by noting that on April 24th, a Zweig breadth thrust was triggered on the S&P 500 index.<\/p>\n
The Zweig breadth thrust is an indicator that attempts to detect the early stages of a potential bull run by dividing the 10-day moving average of the number of advancing stocks by the total number of stocks.<\/p>\n
Lee says that the Zweig breadth thrust has nearly always signaled imminent stock market rallies.<\/p>\n
\u201cThat has happened 11 times since 1978 and notably, one month, six months and 12 months later, stock markets are always up. And this was triggered on April 24.\u201d<\/em><\/p>\n Secondly, Lee notes that the high yield options adjusted spreads (OaS) retraced 50% of its widening on April 23rd. A shrinking of credit spreads \u2013 the difference in yield between riskier junk bonds and \u201crisk-free\u201d government bonds \u2013 typically signals stability and healthy investor risk appetite.<\/p>\n \u201cThat\u2019s a positive development because we are now walking back from a recession risk. If high yield spreads had gone from 500 [basis points] to 1,000, a recession was guaranteed, but instead it\u2019s reversed almost all the widening back to even levels before April 2nd.\u201d<\/em><\/p>\n Lee also says that the S&P 500 saw two straight days where 90% of the S&P 500 stocks rallied, an event that has historically led to further upside.<\/p>\n \u201cThat means that stocks, within a couple of days apart, had posted two days where the advancing gains were 90% or more. As you can see here, three times since 1979, stocks are higher three, six and 12 months later.\u201d<\/em><\/p>\n Lastly, the investor takes note of the volatility index (VIX) \u2013 a measure of market volatility based on data from the Chicago Board Options Exchange \u2013 closing below the 31 level.<\/p>\n According to Lee, the VIX is now signaling a drop off in future volatility and likely strength for equities.<\/p>\n