After the worst year for stocks since the 2008 Financial Crisis and the worst year in history for bonds, the probabilities favor higher prices in the coming months – a Breakaway Momentum signal was just triggered.
The stock market generated Breakaway Momentum on January 12th, for the 25th time since 1945.
Breakaway Momentum, otherwise known as a "breadth thrust", occurs when ten-day total advances on the NYSE are greater than 1.97 times ten-day total NYSE declines according to Walter Deemer, a retired top technical analyst. It's not a very common occurrence. One of the keys to generating breakaway momentum is not a huge number of advancing stocks, as one would think – it's a lack of declining stocks – there are no longer any real sellers.
Breakaway Momentum Signals Since 1945
Breakaway Momentum Performance
The stock market usually pulls back for a brief period following a breadth thrust. We can expect a decline of anywhere between 2.5% - 6% over the next several weeks – so there is some time to put cash to work.
The results have been impressive – double digit returns 6 to 12 months out.
Although the Breakaway Momentum signal has had an excellent track record, it doesn’t necessarily mean that it’s guaranteed to work this time – anything is possible, including a false positive signal – but the probabilities are quite favorable.
Entering a Sweet Spot for Stocks
Additionally, we are entering the sweet spot for equities in the Presidential cycle. Stocks have followed a broad pattern that coincides with presidential terms. This pattern has been surprisingly consistent for the last 100 years or so.
Equities historically do very well at the end of Mid-term years and into the Pre-Election years.
The S&P 500 currently sits at 3999. If it clears 4155, it would be further confirmation of a bullish reversal. Should it clear 4300, the probabilities would suggest that the lows are in and the bear market is over.
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Disclosure: George Kiraly Jr., CFP®, MBA is the Founder & Chief Investment Officer of LodeStar Advisory Group, LLC, an independent Registered Investment Adviser headquartered in Naples, Florida. George Kiraly, LodeStar Advisory Group, and/or its clients may hold positions in the ETFs, mutual funds and/or any investment asset mentioned above. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. The above commentary does not constitute individual investment advice. The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any security in particular.