Still waiting for our Zweig oversold. Our new highs and lows leading the way $study

We are still bearish in here, looking for lower prices and sentiment.  We want that Zweig oversold to get us cocked and ready for a recovery rally.

 

The Zweig took the slightest reprieve on Friday:

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As did the markets and CVI:

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But our 40 DPI would have none of it as more symbols slipped below the 40 DPI.  Now over 2/3 of the stocks are trading below that benchmark.

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We have our first break of the 40-level on the NH/NL indicator.  First time since June.

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Our trenders remind us that we are bearish and looking for bottoming signals:

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Zweig/Ned Davis 4% exit signal

Since 2009 we have been trading the Zweig/ Ned Davis 4% system.  You can read about the system here.

Our interpretation of the sell and buy is a weekly 4% move. Period. I did get a few notes asking me why it had not already sold out as many are using a 4% trailing sell stop with the system.  We base our interpretation from the description in Dr. Zwieg’s  Winning On Wall Street.

The spirit of the system was for the lazy trader to catch long trends.  These trends are marked by mammoth weekly moves in a particular direction.  An upside move is a buy and the downside move is a sell. Some interpret the sell signal as any week that has a 4% swing.  We go Friday’s close to Friday’s close on the Value Line Arithmetic index (VLAI).

That being said this Friday had the VLAI down 5.5% for the week.

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Our strict interpretation of the system is based on Dr. Zweig’s description of an investor picking up the Sunday Barron’s Newspaper and looking at the weekly data for the Value Line and then acting on Monday’s open.  So Monday we will sell our UWM at the opening price to exit a long that we had for 165 days.  If we open flat that will be a disappointing 1+% negative return.  Disappointing in that we were over 10% profit on the highs for the trade.

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That had us thinking, is UWM the correct vehicle to hold for a long?  What would the returns have been if we were trading a different symbol.  The spreadsheet below shows some other possible returns and the effect of a leveraged ETF over the same trading period using Friday’s close.

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Almost any other trade would have been profitable, the Apple trade is just for comparison but the QQQ’swould have returned a 5.7% trade and that is unleveraged?  Our leveraged UWM is about 3x more down that the unleveraged IWM.

We will not switch our trading vehicle, but instead wait patiently for another 4% value line up week to let us know that a new upside trend may be starting, oh, and hope we get a monster gap up on Monday that brings the UWM trade green. Go G8!

– Exiting UWM on Monday’s open.

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Zweig reversal thrust still not in overbought area..

The ZBT reversal thrust developed by Dr. Zweig is hanging out below the traditional overbought area indicating that while price is going up it is not doing so on overly strong advance/decline lines.  This is a healthy bullish reading indicating we still might have more upward price movement.

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Zweig Breadth indicator hit oversold on Friday, 3 days too late for a thrust.. but still bullish $spx [chart]..

For an official Zweig thrust we need to move from oversold to overbought in a 10 day window.  That signal when it happens is a starting gun for a 12 month bull market..  Missing by 3 days does sustainably take away from the bullish predictability of the run, but it remains a bullish accomplishment  and overbought can remain so for a while.  Not a time to short.

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Zweig Breadth Thrust Indicator for TradeStation

 

The Zweig Breadth Thrust indicator is an overbought  / oversold indicator designed by Dr. Martin Zweig.  The indicator represents the percentage of stocks that are advancing on the NYSE.  An reading of less than 40% of stocks advancing represents and oversold condition, while a reading over 61.5% is overbought.  The percentage number is averaged with a 10 day exponential moving average to calculate the true Zweig Breadth Thrust (ZBT).

ZBT = 10 day  ExpAverage  (Advancing Issues / Total Issues ) * 100

    Where: Total Issues = Advancing Issues + Declining Issues

 

A rare momentum market turning signal is generated when the ZBT indicator values move from oversold (ZBT < 40) to overbought (ZBT > 61.5) in any 10 day period.  According the Dr. Zweig, this represents a potential start to a new bull market.  This is a very rare event and happened on March 23rd, 2009.  The last firing before that was August 3rd, 1984, almost 25 years ago.

 

My implementation of the ZBT indicator displays the oversold condition in red, the overbought condition in green, and puts a horrible pink thick line if a ZBT momentum firing happens.  You can see from the image below that we did indeed have a ZBT bull firing

 

 

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Zweig Breadth Thrust Indicator setup:

 

To setup and use this indicator download the !RL_ZBT file. . 

 

The default settings expect that data stream 1 be setup as $ADV and data stream 2 as $DECL.

 

To get the worksheet as it looks above with the data-streams correctly setup and with the NYSE index added as data-stream 3 for evaluation, download the TradeStation worksheet ZBT.TSW .

 

Remember to import the !RL_ZBT eld file first.

 

The symbol and data-streams should be setup as follows:

 

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And the format for the Analysis Technique has the following fields:

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Where:

    Adv = Data Stream number for the advancing issues

    Dec = Data Stream number for the declining issues

    OS = The Over Sold Value

    OB =  The Over Bought Value

 

If you have an questions or would like your own indicator feel free to contact me at indicators@redliontrader.com.