The stock market is on the verge of signaling that the bear market is finally over

  • The S&P 500 is on the verge of signaling that the bear market decline that started last year is finally over.
  • As long as the S&P 500 ends February above the 3,947 level, the bullish signal will have flashed.
  • The signal tracks the 10-month moving average, and since 1960 it has had a perfect record in ending a bear market.

The S&P 500 is about to signal that the bear market decline in stocks that began last year is finally over, according to an obscure technical signal.

That signal is the S&P 500 notching two consecutive monthly closes above its 10-month moving average after a 20% market decline. 

As long as the S&P 500 ends February above the 3,947 level, the signal will have been triggered, according to Urban Carmel, an investment strategy analyst at The Fat Pitch.

The S&P 500 was at 3,996 on Tuesday, with less than two hours left in trading for the month of February.

The signal has proved incredibly reliable for stock market bulls. Since 1960, it has been triggered a total of 14 times, and each time proved that the bear market low was already in. That means if this current trigger proves to be successful, the mid-October low in the S&P 500 of just under 3,500 will indeed prove to be the bear market low.

“Every time since 1960: Barring a close [below] 3,947, the bear market low (i.e. after a 20% fall) has been in when S&P 500 closes above the 10-month moving average two consecutive months,” Carmel said in a tweet on Monday.

The last time the signal was triggered was June 2020, which proved to be an extremely profitable time to buy stocks. Other times the signal was triggered include February 2012, July 2009, and May 2003. 

And it’s of no concern to Carmel that February will likely be a down month for stocks.

“In 2 of the 14 instances, the second month was red (like now). In both cases, [the] S&P 500 went on to a new [all-time high] (new ATH in 1972) and 1988 (new ATH in 1989),” Carmel explained.

But the signal isn’t entirely perfect if you zoom out further to include more data. From 1940 to 1960, the signal was triggered an additional three times, with one of those instances failing and leading to the S&P 500 retesting its prior low from in 1948. 

Still, the signal highlighted by Carmel is just one more bullish technical indicator that suggests the worst may be over for investors.

Earlier this month, Anthony Scaramucci highlighted an under-the-radar technical signal that hinted a new bull market is about to begin.

S&P 500 chart