A sharp increase in a measure known as the McClellan Summation Index is sending a signal that has predicted further gains for the S&P 500 with near-perfect accuracy, according to Dean Christians, a senior research analyst at SentimenTrader.
The McClellan index itself is a gauge of stock-market breadth. When it's rising, more stocks are joining in a rally, and breadth is said to be improving. When it's falling, typically market breadth is deteriorating, or the stock market is simply selling off.
Technical analysts use the measure to help monitor how stocks are faring beneath the surface of indexes like the S&P 500. But in the past, rapid improvements in the indicator have reliably forecast more stock-market gains ahead. When the indicator suddenly rises from below 100 to above 1,000, stocks have continued to climb over the next year with 96% accuracy.
However, that figure jumps to 100% when the indicator triggers with the S&P 500 within 2% of a notable high. The signal flashed on Monday.
To Christians, this means the gains forecast by the indicator have significance beyond the fact that stocks typically tend to rise over time.
To access Dean Christians' full research note and other market insights, visit SentimenTrader.com.