According to recent statements by Fundstrat’s research director Tom Lee, four critical indicators suggest a potential positive turnaround in the stock market. In his market update, Lee highlighted the Zweig breadth thrust signal, which occurred on April 24 in the S&P 500 index. Considering the correlation between cryptocurrencies and stocks, this assessment is crucial for all market participants.
Zweig Breadth Thrust Indicator
The Zweig breadth thrust is defined as an indicator that signals an early-stage upward trend by using the ratio of the moving average value of stock counts to the total number of stocks. Lee noted that this effect has indicated market increases on 11 different occasions since 1978, with the signal corresponding to general upward trends observed one, six, and twelve months later.
Tom Lee: “This has happened more than 11 times since 1978; the markets have always moved upward afterward.”
Credit Spreads
Additionally, Lee pointed out that option-adjusted spreads in the high-yield bond market narrowed significantly on April 23. A reduction in credit spreads indicates a smaller yield difference between risky bonds and government bonds. This development is interpreted as a sign of reduced recession risk and renewed risk appetite among investors.
Tom Lee: “The narrowing of high-yield spreads back to previous levels is seen as a positive development.”
Broad Market Gains
Lee emphasized that over two days, more than 90% of the stocks in the S&P 500 index showed increases, signaling potential further gains ahead. Historical data shows that similar occurrences have resulted in positive returns globally over three, six, and twelve-month periods.
Tom Lee: “This indicates that stocks periodically show significant increases.”
Furthermore, the decline of the VIX index below 31 supports the view that future volatility may decrease. Lee added that low VIX levels indicate that stocks could gain strength in the markets.
The indicators mentioned reveal a series of positive signals associated with the technical formations observed in the stock market. Considering the correlation between cryptocurrency markets and the S&P 500 (SPX), this also provides supportive insights for cryptocurrencies.
These evaluations highlight the necessity of closely monitoring market data, alongside technical indicators. The developments are considered beneficial for understanding market trends, especially for portfolio managers and market participants.
