The S&P 500 has run up an impressive 12.5% year-to-date. Analysts at Oppenheimer are telling investors to stay bullish as they see three specific reasons why the market will continue to charge forward.
1. High-Beta vs. Low-Volatility Signal Flipped Bullish
The S&P High Beta ETF ( SPHB – Get Report) is an index of 100 stocks from the S&P 500 with the highest sensitivity to market movements, or beta, over the past 12 months. Recently this ETF turned bullish, and Oppenheimer sees this as not only a sign to add to a position in the ETF but as a bullish signal for the equity markets as a whole.
“Overall, a resumption of this pro-cyclical leadership should help extend the duration of the S&P’s advance, by our analysis,” the firm wrote.
2. NYSE Participation Ticked Above 60% Last Week
Oppenheimer found that the percentage of stocks traded on the NYSE that have risen above their 200-day moving average is at around 62% vs. as low as 49% in mid-August.
“This is important because we’ve found that major market tops typically don’t occur with over 60% participation,” Oppenheimer noted. “Forward returns have been higher when 200-day participation is above this threshold-since 1994, the S&P 500 has averaged a 4.7% gain over the next six months when this indicator is between 60%-70% vs. a 2.0% gain when between 40%-60%.”
3. There’s Conviction Behind the Rally
“It’s only fair to report that October is known for its mean-reverting tendencies,” Oppenheimer noted.
But this is not enough to derail their bullish theory, rather it’s quite the opposite.
The firm contended that possible October weakness in the market should be bought ahead of November and December, typically the two strongest months for the market.