Stocks Are About to Jump Double Digits

The pullback has gone from narrow to widespread...

Stocks have fallen across the board. Everything from the technology sector to transportation stocks has dipped recently.

You can see this by looking at "market breadth." That's a way of gauging when lots of stocks are doing well, not just a few. It can also show when a downturn is widespread.

Today, market breadth is at one of the lowest levels in years. But that could change soon.

You see, today's breadth readings are at a crucial level. And while the market seems risky, this means the S&P 500 Index is actually poised for a 13% rally from here.

Let me explain...

It seems like a bad time to bet on a market rally. Sure, prices ended last week slightly higher. But all of the problems that drove stocks lower to begin with are still around.

That's what we see on the surface. But if you dig a little deeper, the opportunity becomes clearer.

Specifically, we're looking at the McClellan Summation Index...

This index tracks a basket of U.S. stocks. Each day, it subtracts the number of stocks moving lower from the number of stocks moving higher.

If more stocks are up than down that day, the index ticks upward. But when the majority of stocks are dropping, the index falls.

Normally, we want this index to be moving higher. That indicates a broad market rally is underway. But an extremely low level is worth noting, too...

That's because nothing falls forever. Eventually, a few more stocks will go up than down.

If you can peg when that's likely to happen, you can make money in stocks. The McClellan Summation Index could be getting to that point today. Take a look...

Market breadth is at its lowest level in two years. You can also see that today's reading is extremely low relative to history.

Recently, the McClellan Summation Index dropped below a reading of negative 1,500. To see what that means for stocks, I looked at what the S&P 500 has returned after this indicator has fallen below that level in the past.

While only 10 other cases like this have happened since 2000, the results are impressive. Check it out...

Buying the S&P 500 when market breadth is this low has led to major outperformance... more than double a simple buy-and-hold strategy.

Previous setups led to 7% gains in six months and a 13% gain over the next year. This means that the recent drawdown could be ending. And if it does, big upside will likely follow.

In short, history shows this is a promising trade setup. Prices are already starting to rise a bit as well. And if this pattern bears out, we've likely only seen the start of a larger rally.

Good investing,

Chris Igou

Further Reading

"The market is a lot like a rubber band," Chris writes. "When it's pulled too far in one direction, it'll snap back." And right now, this well-known company's stock could be poised for a major rally... Read more here: A Double-Digit Setup for This Industrial Stock.

Investors are scared of the market today. With everything that's happening in the world, no one knows when the volatility will end. But history tells us that fear could point to further gains ahead... Learn more here: Stocks Are Becoming a Contrarian's Dream.

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The drawdown in stocks could be ending. That makes it a great time to own U.S. equities. And one tech company is a fantastic opportunity right now...

Market Notes


Today, we're taking a look at the long-term trend in health care...

Longtime readers know our colleague Dr. David Eifrig is bullish on health care stocks. As the Baby Boomer generation gets older, they'll need more prescriptions and medicines... which is a huge tailwind for the sector. And today's company is providing seniors with the treatments they need...

Eli Lilly (LLY) is a $280 billion pharmaceutical giant. It develops and produces a range of essential medications, from diabetes treatments to cancer drugs. More than 47 million people count on these meds and therapies each year. So as the population keeps aging, this demand shouldn't slow down anytime soon. That's exactly what Eli Lilly saw in 2021... The company's full-year revenue increased 15% year over year to $28 billion.

As you can see, LLY shares have surged higher. The stock is up almost 140% over the past two years. As Americans age, shares of this health care giant should continue to rise...