Trading Nation

A surprise summer rally could be coming for stocks, says market watcher

A historically weak June has a better set-up this year, strategist says

Sell in May and go away? Not this year. Expect a June swoon? Don't hold your breath. These old market adages are in the past, says LPL Financial's Ryan Detrick.

"There's still a lot more positives which makes us think maybe this kind of a surprise summer rally can continue if we get a little bit of volatility even in the usually tricky month of June," LPL's senior market strategist told CNBC's "Trading Nation" on Thursday.

History shows that June is typically a rough month for Wall Street. In the past decade, the has fallen on average by more than 1 percent during the month.

But the recent rally in smaller companies looks like a positive for broader markets this month, according to Detrick.

"We like small caps and sure enough finally that trade has started to work," he said. "Historically speaking, when you have that leadership from those groups, that's usually a good sign."

The current setup has echoes in a market dynamic that played out five years ago, he adds. That bodes well for what comes next.

"We recently had new highs on the Russell 2000, [but] the S&P 500 was still 5 percent away from an all-time high. Last time we saw anything like that with that much leadership from small caps was January of 2013, obviously a really nice time for equities," said Detrick.

The Russell 2000 rose by more than 6 percent that month, while the S&P 500 increased 5 percent. The S&P 500 ended that year with a nearly 30 percent gain.

Small caps have outpaced the S&P 500 by an even wider margin this year. The Russell 2000 ended May with a nearly 7 percent gain. A comparatively weak S&P 500 increased just 2 percent.

The level of participation in any market gains also gives Detrick reason to be bullish.

"Just look at the NYSE advance/decline line," said Detrick, referring to a breadth measure that tracks how many stocks are joining in on a rally or sell-off. "That just made new highs again last week so our personal opinion is that there's a lot of participation to this move, a lot of strength under the surface."

The NYSE advance/decline line ended May around all-time highs. Roughly 84 percent of the NYSE composite advanced.

History says the market is headed for a June swoon