The stock market has flashed a series of buy signals amid tariff-induced volatility.
Bullish indicators suggest the stock market bull market remains intact.
Signals from the bond market suggest a recession may be less likely than many believe.
The stock market is flashing some technical signals that the tariff-induced sell-off earlier this month may be over.
Although stocks fell slightly on Friday morning, they had previously posted three days of strong gains. The benchmark S&P 500 has surged 13% since the Trump administration announced a 90-day suspension of most tariffs.
The rally was swift and furious, with a 10% gain in a single day.
Investors are now left to wonder if this is just a bear market correction that will eventually fall to new lows, or the start of a durable recovery that will push stocks back to all-time highs and get the bull market back on track.
Commentators say it’s likely the latter.
“We believe several key developments occurred this week that raise the probability of a ‘low is in’ to over 90%. In other words, the bull market remains intact,” Fundstrat’s Tom Lee said in a note Friday.
Here are five bullish signals that have flashed in the stock market this month.
1. Zweig Breadth Thrust
The extremely rare Zweig Breadth Thrust indicator flashed on Thursday, signaling a big rally ahead.
The indicator measures the overall participation of various securities in a stock market rally. It has flashed only 18 times since 1945, with the most recent signal coming in November 2023.
The Zweig Breadth Thrust indicator has a perfect record of predicting stock market gains in the six and 12 months following its flash.
In the 18 times the signal has appeared, the S&P 500 has averaged returns of 15.3% and 24.0% over the next six and 12 months, respectively, Detrick said.
2. Volatility Collapse
The plunge in the CBOE Volatility Index (VIX) over the past two weeks was enough to send a “Bear Killer” signal to the stock market.
The signal occurs when the VIX closes above 50 and then below 30. This happened last week, and based on historical stock market data, it indicates that the market has bottomed.
Jason Goepfert of SetnimenTrader says that once the VIX flashes this signal, the forward returns for the stock market are strong.
The median forward returns for 3, 6 and 12 months are 2.8%, 11.0% and 17.9%, respectively, and the positive return rate 12 months after the signal flashes is 100%.
“While the sample size is small, we’ve generally seen throughout history that when stock market volatility reaches high levels, it only occurs in the bottoming phase after a decline,” Goepfert told BI.
3. Death Crosses in Waterfall Selloffs
The “death cross” is traditionally seen as a “sell” signal for the stock market, but according to Adam Turnquist of LPL Financial, it can be a reliable indicator of future positive returns.
Turnquist found that death cross signals flashed within a month of a stock market waterfall decline, on average, showed strong forward-looking returns.
The stock market death cross occurred on April 14, less than a month after the S&P 500 fell 19%.
Death crosses that occurred within a month of a 15% decline in the S&P 500 have produced an average 16% forward return over 12 months, with a win rate of 83%, Turnquist said.
“When you get a death cross and the decline is pretty big, you tend to get better forward returns, which means you’ve already priced in a lot of losses,” Turnquist told BI last week.
4. High-yield bond spreads recover
High-yield bond spreads, essentially the yield investors get relative to benchmarks like Treasuries, are recovering after a tariff-induced spike earlier this month.
The BofA U.S. High Yield Index Option-Adjusted Spread fell from 4.61% on April 7 to 3.75% this week, a 50% recovery from its peak that began in late March.
Lee said the move suggests fears of an impending recession are fading.
“This confirms that we are coming out of a recession,” Lee said.
5. 90% of stocks advance in a row
On April 22, the stock market rose for two consecutive trading days, with 90% of stocks rising.
This trading behavior highlights the stock market’s strong performance during its continued rise, indicating its staying power.
Lee said the signal has a proven track record of confirming that the stock market has made a low.
This signal flashed three other times in March 2009, August 2011 and April 2020, all three times after the stock market bottomed.
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