U.S. stocks found their footing last week, finishing up a July to remember. The Dow popped nearly 3% while the S&P added 4.3% last week and the Nasdaq Composite rose 4.7% for the month. For the month, the S&P 500 rallied 9.1% while the Nasdaq popped in a 12.3% gain, recording one of the strongest months in the index’s history. If that was a bear trap, it wasn’t very convincing, as nine out of the 11 sectors in the S&P 500 all posted gains. If you want to get technical about it, the major indexes all found support for the time being, and we’re starting to see some true breadth thrusts playing out across the stock market. A breadth thrust, my friends, is not a fencing move. It’s a technical indicator that flashes when a large percentage of stocks make new short-term highs, driving their moving averages higher, with more of those stocks advancing rather than declining. And when that happens, a new trend may be forming. If we look back into the history of the S&P 500, every time we’ve seen a breath thrust this strong, according to our friends at All Star Charts, the market was higher 12 months later 27 out of 28 times. Does that mean it will play out this way again this time? No. But the odds are pretty compelling. And the bad news in the economy is starting to be taken as good news in the stock market. It’s one of those weird inflection points when we see markets get stretched to extremes. The preliminary estimates for second quarter GDP showed a 1.1% slowdown, not as bad…
Examining the Health of the Stock Market with Dr. Ed Yardeni
