Under-the-radar stock market signal points to positive outlook, more gains

• An under-the-radar stock market indicator just flashed, suggesting more upside ahead.
• The December Low indicator occurs when the S&P 500 stays above its December low throughout the first quarter.
•  “It would be quite abnormal to expect a massive bear market and a horrible year for stocks this year,” Carson Group’s Ryan Detrick said.

The stock market just flashed an under-the-radar signal that suggests more upside ahead, according to the Carson Group’s chief market strategist Ryan Detrick.

The December Low indicator, according to Detrick, occurs when the S&P 500 stays above its prior December low throughout all of the first quarter.

And that just happened. The S&P 500 hit a low of 3,764 in December, while the lowest level the index reached in the first quarter of this year was 3,794.

The indicator has a solid track record. Since 1950, stocks held above the December lows in the first quarter 36 times, while they fell below the December low 37 times.

“Those are some pretty big sample sizes, and sure enough, the results are quite conclusive,” Detrick said.

When the December Low indicator flashed, stocks delivered an average annual return of 18.6% with a win ratio of 94%.

“When stocks stay above the December low, good things tend to happen,” Detrick said, highlighting that recent years when the indicator flashed and saw strong gains in the stock market included 2021, 2019, 2017, and 2013, among others.

On the flip side, when the December Low indicator was not triggered, and stocks fell below the December low in the first quarter, the stock market saw average annual gains of negative 0.2%, with stocks higher just 49% of the time, according to Detrick.

“If stocks break the December low it is a warning sign,” Detrick said, highlighting that stocks most recently violated the December low indicator in 2022, which ended up being a tough year for investors, with the S&P 500 falling nearly 20%. Other painful years in which the December Low indicator failed to flashed included 2008, 2002, and 2001.

“Anything could happen from here, but the truth is it would be quite abnormal to expect a massive bear market and a horrible year for stocks this year,” Detrick said.