Does weak breadth cancel an 'almost' thrust?

An "almost" breadth thrust

Last week, stocks witnessed one of the most powerful three-day thrusts in history. Probably the most powerful.

There's always a "but," and this time the "but" is that it wasn't actually a breadth thrust. That's based on preconceived notions about what a thrust is. It's assuming there are rules when it comes to these kinds of signals.

The most popular definition of a thrust is the one popularized by Marty Zweig, which looked for the 10-day exponential moving average of the Up Issues Ratio, which needs to cycle from below 40% to above 61.5% within 10 days. Because of a bad day on Friday, it didn't quite trigger.

Zweig breadth thrust

But this is ignoring a potentially important point - it's coming from one of the most severe oversold signals in history

The setup requires the ratio to drop below 40%, but last month it plunged below 30%. If we look for "almost" thrusts that had a setup below 30%, then the precedents become much more interesting.

An 'almost' Zweig Breadth Thrust

Weak even on up days

The S&P 500 rallied more than 2% on Thursday, which is a decently large 1 day rally that usually elicits stronger breadth. Instead, only 59% of NYSE issues rallied along with the S&P. Is this a sign of weak breadth? 

Not entirely. When this happened in the past, the S&P had a greater than average tendency to rally over the next few weeks and months. On a longer term basis, this wasn't always bullish since many of the historical cases occurred at the market's peak in 2000. 

S&P 500 rallies on weak breadth

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We also looked at:

  • More looks at last week's thrust, as well as this week's bad day cancelling the signal
  • Our Aggregate Signal Model has turned negative
  • Energy stocks have gone two weeks without a lower low
  • Ratings agencies have been busy downgrading energy company debt
  • Price/sales valuations for various sectors are showing some values
  • The probability of a "double top" in the VIX
  • Recent economic data has been shocking

The post titled Does weak breadth cancel an 'almost' thrust? was originally published as on on 2020-04-03.

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