The major stock market indices continue to digest recent gains. We know that the Dow Industrials, S&P 500 and NASDAQ 100 have been leading while the S&P 400 and Russell 2000 have been lagging. I expected Friday’s employment report to lead to some Monday morning fireworks, but that doesn’t seem to be the case. Stocks look down a bit and bonds a little worse, but nothing too bad. The bulls should make some noise during the day.
Those of you of used to watch Wall Street Week with Louis Rukeyser may remember the late, great Marty Zweig. He was one of the greats in technical analysis of the stock market and his research is legendary. Last week, a very powerful Zweig indicator called Zweig Breadth Thrust triggered for only the 12th time since 1960. You can click on the link to read the details, but it has a 100% accuracy rate 6 and 12 months out for the S&P 500. And the hit rate from one week to two months is still 90%.
Essentially, this tells us there has been a buying stampede in the stock market, like a rocket achieving escape velocity into orbit. Upside median returns have been 17% and 25% for the 6 and 12 month period. Equally as important, the downside following the Zweig Thrust has never hit 10% over the coming.
For those keeping score at home here are the previous dates:
7-11-1962
11-5-1962
12-3-1971
10-10-1974
1-3-1975
8-20-1982
8-3-1984
5-25-2004
3-18-2009
10-8-2015
1-7-2019
3-31-2023
As some of you know we use various thrusts in our work. We look at short periods of time where the number of stocks advancing overwhelms the number of stocks declining. We also do this for volume. It’s not rocket science, but it’s very powerful.
If you are looking to poke holes in this, I will give you the biggest reason. The infrastructure of the stock market has changed this century with the addition of decimalization and proliferation of ETFs and computerized trading. And the SEC removed the “uptick rule” in 2007. I know much of this sounds wonky so let me give you the conclusion. All of these changes have led to thrusts becoming easier to achieve than before 2001. And some would say less reliable. In the Zweig case, there is no evidence of reduced power.
The Zweg Breadth Thrust confirms other thrusts we have seen in October 2022 as well as January 2023. It would be almost unheard of to see this kind of power even during the most powerful bear market rallies. Yet another reason why I have been calling this a bull market since October.
On Thursday we bought PDBC and more DIA. We sold VGK, IJK and levered S&P 500.
