A super-rare bullish signal with a perfect track record just flashed in the stock market, suggesting another year of record highs

An ultra-rare bullish signal with a perfect track record flashed in the stock market this week, suggesting another year of record highs ahead.

The NYSE McClellan Summation Index completed a cycle from below 100 to above 1000, suggesting that underlying breadth in the stock market is strong, according to data from SentimenTrader.

The index is derived from the McClellan Oscillator, which is a closely followed indicator that measures participation in the stock market. The tool helps traders determine the underlying strength or weakness of a market trend.

According to SentimenTrader senior research analyst Dean Christians, the bullish signal is worth following.

“Similar improvements in market breadth resulted in a 96% win rate over the following year,” Christians said in a note to clients on Tuesday.

But the signal has a perfect win rate when it flashes while the stock market is at or near record highs, as it did this week.

“Signals within 2% of a high have never experienced a loss over the next two, six, and twelve months,” Christians said.

According to SentimenTrader, this rare signal has flashed only 28 times since 1962, not including this week’s signal.

The last time it flashed was in December 2023, and since then, the S&P 500 has surged about 20%.

Of the 28 instances this rare signal has flashed, the S&P 500 has delivered an average return of 5%, 9%, and 15% in the following three, six, and twelve months, respectively.

A 15% gain from current levels would send the S&P 500 to around 6,600 by this time next year, meaning many record highs are ahead if the signal plays out.

“Typically, when stock indexes consolidate, as most have since July, market breadth weakens as lagging moving averages or pivot points catch up to price. However, that’s not the case now, as breadth has remained firm and even improved depending on the index or exchange,” Christians explained.

The improvement in market breadth over the past few months is evidenced by the fact that the equal-weight S&P 500 index is trading at record highs and has been up nearly 10% since July, while the mega-cap growth stocks have been about flat over the same time period.