Bullish Signals for Stocks Emerge Under Market’s Gloomy Surface

While U.S. stocks were flip-flopping in morning trading Monday, there are signs that investors are getting more bullish and snapping up beaten-down stocks.

The S&P 500 Index is coming off its best week since November 2020, having posted four consecutive days of more than 1% gains for just the fifth time in history, according to LPL Financial. Historically, that has been encouraging for the stock market, as each time it’s happened the S&P has climbed more than 20% over the ensuing year, with an average return of 28%.

The key is its breadth also looks strong. Clusters of “breadth thrusts,” which occur when an extreme number of stocks advance rather than decline in a short period of time, have appeared. Technical analysts say these moves tend to happen around the beginning of new uptrends for equities.

That said, investors still appear to be defensive in their buying. Market strength has been led by sectors usually perceived as havens, like energy, health care, utilities and real estate. In fact, Morgan Stanley said last week’s rebound offers a good opportunity to sell and position more defensively.

Here’s a look at what market breadth is telling investors about the trajectory of the U.S. stock market: