Rare S&P 500 Signals: What History Says About This Rally

Two pieces of market research are pointing in opposite directions, which makes this rally harder to read. The bullish argument starts with the SPDR S&P 500 ETF (SPY), which just pushed above its upper weekly Bollinger Band for the first time in more than a year. Put simply, SPY moved beyond the range it normally trades in, which has only happened seven other times since the ETF launched in 1993. That might sound like a warning sign at first, but Astra Insights found that past cases were not automatically bearish. The following few weeks were often choppy, but SPY was higher nine to 12 months later in each situation.

However, the concern is that the rally does not look as strong once you look beneath the headline index. Bespoke Investment Group, using data from The Market Ear, noted that the S&P 500 has been reaching new highs while fewer than 60% of its stocks are above both their 50-day and 200-day moving averages. Known as the Hindenburg Omen, this technical warning signal is rare because the index is setting records even though a large chunk of its members are not participating as strongly. Notably, the last comparable stretch came from December 1998 to March 2000, during the late stages of the dot-com boom.

This does not mean that the market has to follow the same path, but it does show why some traders are uneasy about how narrow the rally has become. The same tension is showing up in semiconductors, where the PHLX Semiconductor Index (SOXX) just delivered its strongest 29-trading-day run since March 2000. Bespoke also found that the chip index is now more extended above its 50-day moving average than at any point since November 2002. Still, the takeaway is not that the rally must end. It is that momentum is still strong, but the next stage would look much healthier if more stocks participated in the rally.

Is SPY Stock a Good Buy?

Turning to Wall Street, analysts have a Strong Buy consensus rating on SPY stock based on 414 Buys, 81 Holds, and eight Sells assigned in the past three months, as indicated by the graphic below. Furthermore, the average SPY price target of $854.09 per share implies 15% upside potential.