While the overall stock market has been moving sideways the last two months, upward momentum is building internally and that could mean a market breakout is coming soon, said CFRA's Sam Stovall.
"Improving breadth points to above-average price appreciation potential," Stovall, chief equity strategist at the firm, wrote in a note to clients Monday, citing the price movement in indexes tracking industries that make up the broader S&P 1500 benchmark.
"Based on the recent bottoming in the percentage of S&P 1500 sub-industries trading above their 10-week moving averages, history suggests that the broad U.S. equity market could see an above-average price gain over the coming weeks."
The strategist cited how about a third of the 149 S&P 1500 sub-industries traded above their 50-day moving averages last week, up from 24 percent in the previous week.
Momentum is improving from an extremely negative state which has presaged market turns in the past, according to Stovall. He found in the last two decades when a third of the sub-industries or fewer are showing this relative strength, the S&P 1500 has rallied 1.5 percent, 2.7 percent and 3.4 percent in the following three-, six- and nine-week time frames. This compares to increases of 0.5 percent, 0.9 percent and 1.1 percent for all instances.
To take advantage of the call, CFRA screened for the sub-industries with the highest relative 12-month price strength and then found the best proxy stocks in each subsector. Here are the seven stock picks that came out on top.