An 'undefeated' bullish market signal triggered recently bodes well for the long term

Published Thu, Jun 11 20206:49 AM EDT

While stocks are pulling back a bit recently, the comeback from the March lows triggered a bullish market signal that typically means share prices will be higher one year from now. Legendary investor Stanley Druckenmiller told CNBC's " Squawk Box " on Monday the market experienced a "breadth thrust" early last week. The Wall Street term refers to the number of advancing stocks at the New York Stock Exchange or the S & P 500 outpacing decliners by 2-1 over a 10-day period. That breadth thrust signal comes as the S & P 500 has rallied more than 45% from an intraday low set March 23. Those gains have been largely driven by massive fiscal and monetary stimulus and growing expectations of the economy recovering as states ease coronavirus quarantine measures. Some market experts think the market has risen too much, too soon following the coronavirus-induced sell-off. But Druckenmiller, founder of the Duquesne Family Office, points out that breadth thrusts are "undefeated" when signaling market gains on an "intermediate basis." Data compiled by Truist/SunTrust Advisory shows the S & P 500 averages a gain of 13.4% a year after a breath thrust signal is triggered. The data also shows stocks are higher 12 months after the event 96% of the time. Keith Lerner, chief market strategist at Truist/SunTrust Advisory, said those stats show a breadth thrust is "a relatively reliable bull market indicator." "These types of all-in momentum signals tend to happen after a bear-market low," Lerner said. "This one is happening a bit delayed, meaning the market has already moved up a lot, but those are signals that this is a bull market." Data from Ned Davis Research also reflects the market's recently strong momentum. The research firm found that the deGraaf Thrust Indicator flashed a positive signal as more than 55% of S & P 500 stocks reached a new 20-day high. These bullish technical signals, coupled with an improving economic and health landscape, have made investors like Druckenmiller take a more optimistic view on the market. " What is clearly happening is the excitement of reopening is allowing a lot of these companies that have been casualties of Covid to come back and come back in force. With a combination of the Fed money and, in particular, a vaccine where the news has been very, very good," Druckenmiller said.

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While stocks are pulling back a bit recently, the comeback from the March lows triggered a bullish market signal that typically means share prices will be higher one year from now.

Legendary investor Stanley Druckenmiller told CNBC's "Squawk Box" on Monday the market experienced a "breadth thrust" early last week. The Wall Street term refers to the number of advancing stocks at the New York Stock Exchange or the S&P 500 outpacing decliners by 2-1 over a 10-day period.