Editor's note: It's time to prepare for a shift in the markets...

With out-of-control inflation and ongoing global supply-chain issues weighing on stocks, many investors have avoided putting their money to work throughout this bear market. But according to Brett Eversole – senior analyst of True Wealth – this downtrend could nearly be over...

That's why he believes it's time for folks to begin preparing investment plans for an upcoming bull market.

In today's Masters Series, originally from the January 25 edition of the True Wealth Systems Review of Market Extremes, Brett discusses a massive shift that's about to take place in the markets... explains why the bear market could be nearing an end... and details how investors can set themselves up to take advantage of this turnaround...   

This Key Divergence Signals a New Bull Market

By Brett Eversole, senior analyst, True Wealth

A crucial shift is taking place in the depths of the stock market...

You won't see it by just looking at stock prices. You won't see it by only looking at the overall S&P 500 Index's movement either.

Instead, you need to see whether more stocks are rising than falling. And once you do that, an important change comes to light...

Despite the market's downtrend, most stocks have stopped falling.

That shift began last month. It's happening for the first time since the start of the bear market. And it means the bottom is in – or we're darn close to one.

Let me explain...

It's natural to simply watch the S&P 500's movements to get a feel for how the market is doing. Most of the time, that's fine. But in certain moments, you get an incomplete picture of market health.

We're in one of those moments right now.

That's because what's happening below the surface has diverged from the broader market's movements. And that's a strong sign that the bear market could nearly be over.

To see it, I looked at the advance/decline line for the New York Stock Exchange ("NYSE"). This cumulative indicator takes the total number of stocks that rose during the day and subtracts the number of stocks that fell. So the advance/decline line goes up when more stocks go up than down over time.

For the most part, this indicator makes new highs and lows right alongside the S&P 500. But that doesn't always occur...

These divergences often mark a turning point for the overall market. Just look at the chart below to see what I mean...

The stock market and the NYSE advance/decline line both hit new highs in November 2021. But when stocks hit new highs in early 2022, the advance/decline line was well below its high.

That divergence was an early warning sign for investors looking under the hood. It meant that more stocks were going down than up, despite a broad rally in the market. And that meant losses were likely... which is exactly what ended up happening.

Today, the opposite situation is happening. Take a look...

The S&P 500 and the advance/decline line bottomed at the same time in October before rallying together into December. And then, last month, they diverged.

The recent market rally failed to break above the December high. But the advance/decline line did the opposite and blasted through its December highs.

That tells us even though the market failed to break out, more stocks are going higher than lower.

And that means a major rally is likely on the way...

This is the first time we've seen a positive divergence since the bear market began. And while it doesn't mean stocks have to go up, the underbelly of the market is finally giving us some good news.

It's another reason why the current rally is likely the start of the next bull run.

What's crazy is that the U.S. isn't even the top performer as this happens. In fact, the U.S. just took an "L" versus the rest of the world.

The last time that happened was in April 2018...

That's also the last time putting money to work outside the U.S. would have been the right move.

U.S. stocks have been outperforming foreign stocks for more than four consecutive years. But that streak ended in December.

Now, foreign stocks are outperforming. So the big question is: What happens next?

You could take this as an opportunity to give up on U.S. stocks... or make a major portfolio shift outside the U.S.

But history shows that the "obvious" move might not be the right one today...

U.S. stocks have been one of the best places for your money since the start of the past decade. And owning just about anything else has been a drag on your portfolio.

That's why most folks had given up on owning foreign stocks altogether. But now, the U.S.'s impressive winning streak has come to an end.

We can see this by looking at the trailing 12-month returns of the S&P 500 and the MSCI World ex U.S. Index.

Based on this rolling measure, U.S. stocks outperformed global stocks for 55 straight months. Take a look at their incredible run in the chart below...

This chart compares the last two 12-month returns for U.S. and global stocks. It cumulates the monthly wins for the U.S. until global stocks have a winning 12-month period.

As you can see, the most recent streak began in 2018. And it's the second-longest one on record – only topped by a 56-month string of wins in the 1990s.

It's no surprise that investors have given up on foreign stocks in recent years. They've consistently delivered worse returns than U.S. stocks. And for American investors, home-country bias – the tendency to own more stocks from where you live – is another reason to ignore foreign stocks.

Even though the recent streak has ended, the takeaways from history probably aren't what you'd expect...

Most investors would probably think this is a bad sign for U.S. stocks. But that's not really the case. Plus, even though U.S. stocks could stage a rally, foreign stocks are still in a prime position to keep outperforming. We can look back to see why...

First, a 49-month winning streak for U.S. stocks ended in 1993... And they were up just 2.4% the following year. But three years later, they had jumped 82%. Meanwhile, foreign stocks outperformed for a couple of years. But they jumped only 29% over the next three years.

Next up, the U.S.'s longest run of straight wins on record ended in 1999... And stocks were up 12% the following year. They fell over the next two- and three-year periods, though. It was a similar story for foreign stocks – except their two- and three-year losses were even larger.

Lastly, a 44-month winning streak ended in 2017. U.S. stocks then jumped 21% over the next two years and 77% over the next three. On the other hand, foreign stocks were roughly flat for two years and up just 24% over three years.

There are two big takeaways from this data. First, U.S. stocks can still perform well – even while coming off a hot streak. So, folks, this is no time to give up on U.S. stocks.

Second, foreign markets are likely to outperform over the next 12 to 24 months. So if you've given up on stocks outside the U.S., now is the time to rethink that strategy.

The point is, you can still find opportunities to profit in today's turbulent markets... as long as you know where to look.

Good investing,

Brett Eversole

Editor's note: With the markets still in turmoil right now, you're probably feeling unsure about what to do with your money. That's why investing legend Dr. Steve Sjuggerud recently came forward to talk about a huge shift that he believes is coming to the markets.

He hosted an online event to explain how you can earn multiple 1,000%-plus winners when this inflection point hits. This shift could cripple your wealth for decades to come if you're not prepared, so you can't afford to miss out. Click here to watch the full replay...