U.S. Stock Market's Broad Rally Is Bullish Sign for Believers

(Bloomberg) -- U.S. investors tempted to book profits after the S&P 500’s successful start to 2018 might be wise to hang on a bit, according to an analysis of historical trading patterns.

More than 40 percent of companies in the benchmark index traded at a 65-day high Friday, the most in almost five years, according to Chris Verrone, the head of technical analysis at Strategas Research Partners in New York. In the past, such broad-based rallies have indicated there’s more room to run.

“There may be some near-term risks associated with the velocity of the recent advance (e.g., sentiment is getting more complacent as the seasonally soft month of February approaches), but a surging new-high list is historically consistent with better than average forward returns and a high percent of positive hit rates,” he wrote in a note to clients Tuesday. “Simply put, this isn’t a condition often found near major market tops.”

Since 1990, when more than 30 percent of companies in the S&P 500 hit 65-day highs, returns were positive in the next 3 months almost 85 percent of the time. On a 12-month horizon, stocks notched gains more than 96 percent of the time, according to Verrone.

To contact the reporter on this story: Sarah Ponczek in New York at sponczek2@bloomberg.net.

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Brendan Walsh, Joanna Ossinger

©2018 Bloomberg L.P.