A new bull market in stocks has likely begun, according to a Monday note from LPL Research.
LPL pointed to three technical analysis signals that increased the likelihood the current uptrend in stocks is not a bear market rally.
"The technical conditions of this market appear ripe for the start of a new bull market rather than a retest," LPL said.
Given overwhelmingly negative sentiment in recent months, investors have been concerned as to whether the current surge in stock prices is nothing but a typical bear market rally.
But LPL pointed to three technical indicators that argue the bottom is already in:
1. The 50% retracement level
The 50% retracement level is a technical analysis signal that has historically been effective in identifying major market reversals.
It is the mid-point level between a peak and a bottom of a security price. For example, the S&P 500 peaked around 4,800 in January, and put in a bottom around 3,635 in June. The 50% retracement level of this range is 4,231, which the S&P 500 closed above last week.
"In all bear markets since World War 2, when the index has risen above that retracement level, it has been the start of the next bull market rather than a bear market rally," LPL's chief equity strategist Jeffrey Buchbinder said.
2. Surging breadth
Measured by the percentage of S&P 500 stocks trading above their 50-day moving average, the stock market has seen a marked improvement in breadth, or participation, among the ongoing rally.
"The 90% level has historically signaled the start of new bull markets coming off major lows such as 2009, 2011, 2018-2019, and 2020," Buchbinder said. On Friday, 92% of stocks in the S&P 500 traded above their 50-day moving average, generating a positive breadth signal.
3. Percent of stocks at new highs
Finally, LPL put together data comparing the start of prior bull markets to today when it comes to new relative highs in stocks.
Specifically, the percentage of stocks at 21-day new highs and 63-day new highs has surged recently to 53% and 26%, respectively. At the start of prior bull markets, these readings hit an average of 43% and 17%, well below the readings of today's young bull market.
The comparison ultimately speaks to the underlying strength of the current stock market rally, and it suggests that the rally could have further room to run.
"In sum, the technical conditions of this market appear ripe for the start of a new bull market rather than a retest," Buchbinder said.
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