We are currently tracking a rare Zweig Breadth Thrust Reversal signal, and it would fair well for all to heed. This signal is very rare and if it fires would signify a reversal strong enough to propel the markets up another 20% over the next 12 months. If it fails, like all the other attempts since March 2009 (the last firing of the signal) it would signify a retest of the lows or perhaps lower lows.
Since August 8th, 2011 we have based at the lows and begun a rally back up and in the process driven our ZBTr up to 57. This indicator fires when within any ten days we move from below 40 to above 61.5. Its accuracy is nearly perfect in predicting bull markets (The last firing was March 2009). So we sit at 57, but that last 4.5% is extremely hard to reach, it has 7 days from this posting to get there.
What does history teach us?
Spinning the clock back to 2008 we will look at three different attempts which I think represent our current fork in the road.
Failure #1 came as the wheels were coming off in September 2008 and into the beginning of October. Again our ZBTr ran down to that 27.70 level and we put in a bounce. Day 3 we were up to 51 failed back down to below 40 which restarted the ZBTr ten day counter, had a nice counter day rally up but yet missed the 61.5 number, prices failed and we made a lower low and another 27.7 reading.
Failure #2 picks up wither Failure #1 left off. With a bottom near 700 we put in 5 days of rally, encouraging the bulls which were never able to get the indicator above 61.5 before the clock ran out. This led to an agonizing down ward slow drift that eventually collapsed into the March 2009 lows.
Success – Finally in March 2009 with a series of oversold ZBTrs we lifted out and had our first successful ZBTr since 1984 and the rest is history.
So it is well worth your time to follow along as we watch the ZBTr over the next 7 trading days for a hint of what is to come, new market highs our a series of lower lows?
More about the ZBTr:
The following excerpt is from Steven B. Achelis’s book Technical Analysis from A to Z
The Breadth Thrust indicator is a market momentum indicator. It was developed by Dr. Martin Zweig. The Breadth Thrust is calculated by dividing a 10-day exponential moving average of the number of advancing issues, by the number of advancing plus declining issues.
A “Breadth Thrust” occurs when, during a 10-day period, the Breadth Thrust indicator rises from below 40% to above 61.5%. A “Thrust” indicates that the stock market has rapidly changed from an oversold condition to one of strength,but has not yet become overbought. According to Dr. Zweig, there have only been
fourteen fifteen Breadth Thrusts since1945. The average gain following these fourteen Thrusts was 24.6% in an average time-frame of eleven months. Dr. Zweig also points out that most bull markets begin with a Breadth Thrust.
The following chart shows the S&P 500 and the Breadth Thrust indicator.Horizontal lines are drawn on the Breadth Thrust indicator at 40.0% and 61.5%.Remember that a Thrust occurs when the indicator moves from below 40% to above 61.5% during a 10 day period.On December 18, 1984, I wrote the following comment regarding the Breadth Thrust indicator in a software manual:
“At the time this discussion on the Breadth Thrust is being written (12/18/84), the NYSE has gained only 1.6% since the ‘Thrust.’ If the market fails to go higher in the next six to twelve months, it will be the first false signal generated by the Breadth Thrust indicator in 39 years! With historical average gains of almost 25%,we feel the odds are in our favor when we go with the Thrust.”
As shown in the example, the NYSE did in fact go higher in the ensuing months.Twelve months after the Thrust occurred the NYSE was up 21.6%. Twenty-one months after the Thrust occurred, the NYSE was up a whopping 51%. Trust the next thrust…