Here comes some technical analysis.
At the close of trading on Thursday, a “Zweig Breadth Thrust” signal went off, and this is really good news for the stock market.
As Rob Hanna at Quantifiable Edges outlines, this is an indicator that has been triggered when the 10-day exponential moving average of stocks rising tops 61.5% after having been below 40% within in the last two weeks.
On Thursday, this ratio topped 63%, triggering the “Zweig Breadth Thrust” indicator.
In simpler terms, this roughly means that after fewer than two in five stocks were trending upwards a few weeks ago, we now have closer to two-thirds of stocks in the market rallying. And so after momentum inside the stock market was negative not too long ago, this trend has notably and in a serious way reversed.
As Hanna notes, the “Zweig Breadth Thrust” indicator is named for legendary investor Martin Zweig, who among other things called that the market appeared headed for a crash on the Friday before the historic “Black Monday” of 1987 when the Dow fell 22% in a single day.
This is only the eighth time that the “Zweig Breadth Thrust” indicator has been triggered since 1970, and in all seven previous instances, the S&P 500 finished higher 20 days later with positive readings in 1975, 1982, and 2009 all leading to 20-day rallies greater than 8%.
So, just something to keep in mind.