There's an ultra-rare bullish signal on the verge of flashing in the stock market
The stock market is about to flash an incredibly rare bullish signal: the Zweig Breadth Thrust Indicator.
The signal looks at 10-day trading intervals in the stock market. If it does flash, it would suggest that stocks are about to enter a new bullish phase and that the tariff-induced decline from earlier this month represented "the" bottom for risk assets.
What is the Zweig Breadth Thrust Indicator?
The indicator measures overall participation among individual securities in the stock market's rally. It was developed by investor and author of "Winning on Wall Street, Martin Zweig.
Since 1945, the indicator has only flashed 18 times, with the most recent signal occurring in November 2023.
What needs to happen for the signal to flash?
The indicator is calculated by taking a 10-day moving average of the number of advancing stocks divided by the number of advancing stocks plus the number of declining stocks.
The calculation derives a percentage, and when it falls below 40% and then surges above 61.5% in 10 days or less, the indicator is triggered.
The indicator's countdown began on April 11, when the ratio jumped above 40%. According to data from StockCharts.com, it has since risen to 61.34% as of Thursday morning.
The 10th day of the countdown clock is Friday, so stocks need to muster a continued rally driven by broad participation to flash the bullish signal.
Ryan Detrick, chief market strategist at Carson Group, has been closely following the indicator over the past week.
"Although the computation is a tad confusing, the bottom line is many stocks went from oversold to overbought in a short time frame," Detrick told BI. "This is what you tend to see at the beginning of new bullish phases."
What comes next after the indicator flashes?
The Zweig Breadth Thrust Indicator has a perfect track record of predicting positive stock market gains in the six and twelve months after it flashes.
According to Detrick, of the 18 times the signal has flashed, the average forward 6- and 12-month returns for the S&P 500 are 15.3% and 24.0%, respectively.
Carson Group
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