The stock market just signaled that the ongoing rally is broadening and has more room to run

  • An indicator tied to the NYSE just flashed a bullish signal that suggests more upside ahead, according to Fairlead Strategies.
  • The firm highlighted the recent breakout in the Advance-Decline line as breadth begins to improve.
  • “Expansion in breadth should contribute to the sustainability of the uptrend,” Fairlead Strategies said.

The stock market just flashed another bullish signal that suggests the ongoing rally is sustainable and has more upside ahead, according to Fairlead Strategies’ founder Katie Stockton.

In a Tuesday note, she pointed out that the S&P 500 closed higher for the fifth consecutive week, and that was accompanied by a confirmed breakout in the NYSE Cumulative Advance-Decline line.

“This is something that we were looking for to essentially affirm the strength of the breakout in the major indices, and now we have that as indicative of expanding market breadth, something that can contribute to the sustainability of the uptrend,” Stockton said.

The advance-decline line is a technical indicator that helps measure the number of individual stocks that are participating in a market trend. The recent breakout suggests breadth, or participation among individual stocks, is starting to pick up.

That’s a big win for the bulls, as much of the bearish stock market commentary in recent months was that the year-to-date rally was being driven solely by just a handful of mega-cap tech stocks.

“Expansion in breadth should contribute to the sustainability of the uptrend,” Stockton said, adding that “momentum of course is still to the upside.”

Evidence of the increased stock market participation could be seen in industrials, she highlighted, with an ETF tied to the sector recently breaking out of a multimonth trading range.

“More broadly, we’re seeing relative strength improve there [industrial sector] as well, and this seems to be a function of improved market breadth,” Stockton said.

In the short-term, she predicted that the S&P 500 is likely to flash an oversold “buy” signal on Tuesday, based on the 60-minute DeMark Indicators, “suggesting this week may maintain an upward bias.”

Stockton sees the S&P 500 trading to its near-term resistance level of 4,510, which represents potential upside of 3% from current levels.