The Tell: It would take an ‘immaculate conception’ to create bear market in stocks right now: analyst

How strong is the uptrend in the U.S. stock market? So strong that, according to one analyst, it would take divine intervention to stop it.

“From a purely technical point of view, if a bear market is born this month it would have to be considered the result of some sort of ‘immaculate conception,’” wrote Doug Ramsey, chief investment officer of the Leuthold Group.

Avoiding such a drop would actually mean a break with a loose historical trend where Wall Street suffers “a nasty second-half setback during each of the last 13 years ending in ‘7,’” he wrote in a report. “We think it’s likely stocks will close 2017 at higher levels; therefore any intervening ’Unlucky Sevens’ pattern weakness would need to materialize fairly quickly.”

The “curse of the seventh year” refers to how, in recent decades, Octobers in years ending with seven (1987, 1997, and 2007) have been negative for markets. The pre-financial crisis bull market ended this month 10 years ago, while the Dow dropped more than 12% over October 1997. “Black Monday,” which still stands as the biggest single-day percentage decline on record, occurred in October 1987.

Read more: October’s performance could decide if stocks have a great, or middling, run deep into 2018

Ramsey cited a “remarkable level of bullish ‘agreement’ across the U.S. stock market” for his positive views on the market, which he said “stacks the odds heavily against an imminent cyclical top,” although he said that it was still possible that stocks saw a “short-term setback.”

Pullbacks have been extremely rare over the past year, to the point where the S&P 500 hasn’t experienced a decline of at least 3% since November, its longest such stretch since the mid-1990’s. Stocks have throughout the year been supported by strong corporate earnings and economic data, as well as the prospect of tax reform out of Washington, which has helped traders shrug off the impact of geopolitical uncertainty and devastating hurricanes.

Read more: S&P 500 is poised to make uncanny stock-market history—for doing almost nothing

The “agreement” Ramsey sees comes from a number of major equity indexes hitting new highs at the same time. Not only have the Dow DJIA, +0.13% S&P 500 SPX, +0.09% Nasdaq COMP, +0.22% and Russell 2000 RUT, -0.17%  been hitting repeated records of late, but so have a number of closely watched sectors, including transports DJT, -1.02% utilities DJU, -1.02%  (which hit a record in September), and financials XLF, +0.04% which are trading at a 10-year high.

These all count as “need to have” indexes for bullishness, Ramsey said, while others that he views as “nice to have”—including “factor” indexes that tilt broader indexes towards strategies like value, growth, momentum, and low volatility—were also trading at highs.

The gains have been fairly broad based. Currently, according to data from StockCharts, 76.2% of S&P 500 components are trading above their 50-day moving averages, a closely watched technical level that is typically seen as a proxy for positive short-term momentum. In late August, only 41.5% of components were above this level. Currently, 73.8% of components are above their 200-day moving average, up from about 62% in early September.

“There remain leaders and laggards (growth and momentum over value, cyclicals over defensives), but that’s very different from saying there are major internal divergences. and those who claim to see them are simply squinting too hard, in our opinion,” he wrote.

Currently, Leuthold has net equity exposure in its tactical funds at around 61%, down from a range of 66% to 69% tbetween January and June. Ramsey said this level of exposure reflected”our shorter-term concerns (which have so far proven to be unfounded).”

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