Stocks Trigger '100% Accurate' Bullish Signal After 3-Day Rally
Stocks triggered a Zweig Breadth Thrust signal on Thursday, a rare indication of surging market breadth that, over the last 80 years, has been a reliable predictor of the stock market's direction.
Since the 1940s, the S&P 500—or its predecessor index before 1959—has averaged a 6-month return of 14.8% and a 12-month return of 23.4% after ZBT signals.
Stocks have rebounded this week from their "Liberation Day" slump on optimism that the Trump administration is eager to defuse tensions with China.The stock market just hit a milestone that some market watchers say is a sure sign of more gains ahead.
Stocks on the New York Stock Exchange (NYSE) on Thursday completed a Zweig Breadth Thrust (ZBT), which is realized when the share of rising stocks increases from a moving average of less than 40% to more than 61.5% within a 10-day period. The rare occurrence, which has only been seen 19 times in the last 80 years, is considered a sign of increasing market momentum driven by broad bullish sentiment.
"This signal has been 100% accurate since WWII, with the S&P 500 higher 6- and 12-months later every single time," according to Ryan Detrick, chief market strategist at Carson Group. Looking at the last 19 ZBT signals, the S&P 500 has averaged a 6-month return of 14.8% and a 1-year return of 23.4%, according to Detrick.
Stocks have rebounded from their "Liberation Day" slump amid optimism that the White House is eager to defuse tensions with China, which the administration has slapped with tariffs totaling 145% this year. The S&P 500 was up slightly on Friday after rising more than 1.5% in each of the last three sessions.
Not everyone is sold on ZBT's predictive power. Technical analyst Tom McClellan, in 2015, examined Breadth Thrusts between 1929 and 1934 and found them to be much less reliable bullish signals.
The first signal in this period came in November 1930, and it did precede a strong upswing. "But its bullish effect petered out after just a few months, and the bear market was back on," McClellan wrote. Over the next two years, four more Breadth Thrusts failed to break the bear market.
"It was only in April 1933 that there was finally a good signal that led to follow-on buying," McClellan said. But that signal was followed by two more in 1934 that didn't come to much.
McClellan was writing in 2015, when a ZBT signal was triggered just months after stocks hit a record high. "I cannot offer much in the way of optimistic commentary about this current ZBT signal," McClellan wrote, "especially since it has occurred at a point that appears to be the early stage of a new downtrend."
Stocks did rise after that ZBT signal, but it was one of the weakest ZBT rallies on record, with the S&P 500 up just 1.4% and 7% over the next 6 and 12 months, respectively, according to Detrick's data.
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