Stocks are sending a rare bull market signal for the first time in nearly 3 years. But some have their doubts.

A technical signal that hinted at previous turning points for the US stock market has arrived for the first time in nearly three years, according to data provided by its creator.

But some on Wall Street suspect it may not be as reliable as it once was.

The technical indicator, which is simply known as the thrust width indicator, was triggered on January 1st. 12 for the first time since June 3, 2020. The indicator was created by retired analyst Walter Deemer in 1973 while working at Putnam Investments. A company representative confirmed that Deemer worked there between 1970 and 1980.

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His arrival caused a stir among technical analysts, according to MarketWatch interviews with several strategists.

The thrust width indicator

The range indicator is based on a relatively simple formula: the main datum is the ratio of stocks on the New York Stock Exchange and other stocks that have gone up in 10 trading sessions compared to those that have gone down.

When said ratio climbs above 1.97, the indicator triggers, Deemer said. This has happened only rarely in the years since its inception, and often it has happened just as a new bull market was starting.

As the range indicator has grown in popularity, others have created their own modified versions of it, which, like the original, aim to provide investors with a more detailed view of how individual stocks influence the performance of the stock. market at large.

Some variants focus only on the advance-decline ratio of common stocks traded on the NYSE, while the original uses a broad metric that includes not just common stocks, but also preferred stocks, exchange-traded funds, and other exchange-traded products, Deemer said.

“Trust the push”?

Some stock analysts believe that the range indicator and other early indicators of improving market breadth have become less useful in recent years, in part because many of them have been triggered more frequently.

Ed Clissold, chief US strategist at Ned Davis Research, said several similar indicators maintained by his firm were triggered during last year’s market tumult, raising questions about their continued usefulness.

“The cliché on Wall Street was ‘trust the push’ as ​​they would be among the first indicators to signal that a new bull market is underway,” Clissold said in a phone interview.

“But because these push indicators are becoming more and more frequent, we now say ‘trust but verify’. And verification comes from mid-term magnitude indicators.

In particular, Clissold said he would like to see more of the shares trading above their 50- and 200-day moving averages before accepting that a lasting shift in market sentiment is likely to have arrived.

Mixed signals

According to Katie Stockton, technical analyst at Fairlead Strategies, other popular indicators based on the NYSE’s early bearish data seem to suggest stocks might be a little richly priced.

For example, the McClellan Oscillator, another popular technical analysis tool that is also based on early NYSE downside data, reached levels consistent with last year’s short-term stock market peaks, Stockton said. in a note to customers on Wednesday. This suggests that the S&P 500 has become “overbought.”

U.S. stocks fell for the second straight day on Wednesday while posting their worst daily decline of the year so far. The S&P 500 SPX,
-1.56%
fell 1.6% to end the session at 3,928.86, according to FactSet data.

The Nasdaq Composite COMP,
-1.24%
fell 1.2% to around 10,957.01, while the Dow Jones Industrial Average DJIA,
-1.81%
fell 1.8% to 33,296.96.

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