The Stock Rally Is Showing Signs of Strength

The S&P 500 stock market index hasn’t fully recovered from the correction it suffered a month ago.

However, internal trends indicate the benchmark U.S. equity index is stronger than it looks.

There has been notable improvements in stock market breadth and other technical factors.  Sameer Samana is global equity and technical strategist at Wells Fargo Investment Institute.  He recently cited improvement in stock market breadth as a bullish signal.  This means the ratio of advancing stocks to declining ones.  He noted that the Bloomberg Cumulative Advance-Decline Line had improved since last month’s correction.  This measures breadth of stocks traded on the New York Stock Exchange. “This suggests that the worst of the pullback may now be behind us,” Samana wrote.

Furthermore, “we’re seeing better overall progress. There was a concern because market breadth looked like it was deteriorating.  However, now that’s turning around a bit.”  This according to Michael Mullaney who is director of global market research at Boston Partners.  “The percentage of companies above their 50-day is a sign that we’re getting better internal support.”

In addition, Morgan Stanley, in a Monday note to clients, speculated that the high hit in January and the low reached in February “about established the high and low end of valuations for U.S. equity markets” for the rest of the year. Read more.