Why the stock market will avoid a bearish 'trifecta' and continue surging to record highs

"That the market did not buckle in January and our models have remained bullish support the case for the cyclical bull to continue," NDR said.

• The stock market is poised to dodge a bearish "trifecta" as the S&P 500 prints a monthly gain in January.
• Ned Davis Research said the positive month of gains in January suggests the bull rally will continue.
• "That the market did not buckle in January and our models have remained bullish support the case for the cyclical bull to continue," NDR said.

The stock market is poised to avoid a bearish "trifecta" signal as the S&P 500 prints a positive gain in the month of January.

It was a rocky start for stocks at the start of the year, with the Santa Claus rally and the first five trading days of January both printing negative returns. But since then, stocks have rebounded and the S&P 500 is poised to generate a positive signal for the January Barometer.

The January Barometer is a technical signal that suggests "so goes January, so goes the market." In other words, if stocks gain in January, the rest of the year should be positive for stock market returns, and vice versa if January is a negative month. 

The S&P 500 is up 2.5% so far this month with just two trading days left. 

That's good news, according to Ned Davis Research chief US strategist Ed Clissold, who crunched the numbers and found that the stock market typically continues its bull rally for the rest of the year as one of the three January signals turns bullish.

"February through December gains have been stronger when the January barometer has contradicted negative signals from the other two," Clissold said in a Monday note.

There have been only four times since 1929 when the Santa Claus rally and First Five trading days of January fired a bearish signal while the January Barometer was positive, and each time was bullish for stocks.

"In the four cases the Santa Claus and first five indicators were bearish but the January barometer was bullish, the S&P 500 rose every time by a median of 12%," Clissold said.

A 12% gain for the S&P 500 would send the index to a record high of 5,479, which would be even more bullish than the most bullish 2024 projections on Wall Street. 

"The rally off the October 27 low left the market overbought; hence the bearish Santa Claus and First Five signals. That the market did not buckle in January and our models have remained bullish support the case for the cyclical bull to continue," Clissold concluded.