Admittedly, I’ve been struggling keeping my optimism up about the market lately. I’m definitely staying the course and not running for the hills as I like to preach, but it hasn’t been easy. But recent stock market activity has given me some hope. The S&P 500 has found its way out of correction territory (for now). The NASDAQ was up nearly 7% this past week. It seems that softening tariff talks and a few key positive earnings reports from big companies have been helpful. The Mag 7’s MAMA (MSFT, AAPL, META, AMZN) report earnings this coming week, which could help keep the momentum going if reports are well-received by investors.
The other thing that has happened recently that could be seen as a bright spot in all of this turmoil is something called the Zweig Breadth Thrust. It’s a technical indicator that measures market momentum and potential trend reversals and looks at how many individual stocks are going up versus going down during a market rally. When there's a sudden, strong increase in the ratio of advancing to declining stocks, it’s known as a “thrust.” This typically signals that market sentiment has shifted dramatically in a positive direction. Martin Zweig, a successful investor who predicted Black Monday in 1987, developed the indicator after discovering that a shift from a broad sell-off to buying in 10 days or less tended to lead to significant gains over the next year.
It turns out that Zweig Breadth Thrust actually triggered a few days ago on April 24th, which is just the 20th time that’s happened since the end of WWII. The last time we saw one was near the S&P 500's low in November 2023.
Following previous similar market events, the S&P 500 has shown remarkable performance with an average 24% increase one year later, while also delivering strong shorter-term results: 5% after one month (with 95% success rate), 8% after three months (79% success rate), and 15% after six months (with a perfect 100% success rate).
With regard to reliability, the Zweig Breadth Thrust is considered reasonably reliable among technical analysts, especially when coupled with other indicators. The signal is pretty rare and only occurs a few times per decade. But when it does happen, it more often than not precedes strong market rallies.
However, like all technical indicators, the Zweig Breadth Thrust isn't perfect; it can give false signals and works better in some market conditions than others, which is why many traders use it alongside other technical analysis tools rather than depending on it alone.
"Technical analysis is a windsock, not a crystal ball." — Carl Swenlin
So while technical indicators like Zweig’s can provide valuable signals about market direction and make us feel a little better, we should maintain a degree of skepticism and not treat such indicators as prophecy. Though technicals can show you which way the market winds are blowing currently like a windsock, they can’t predict future conditions—nothing or no one can except for maybe a time traveler.
Nonetheless, I enjoy thinking about the potential positive returns that may follow the recent Zweig Breadth Thrust signal to help keep me somewhat positive in an environment filled with a lot of things to feel negative about.
P.S. I'm sharing some investment information, but it's important to remember that what I'm providing is for informational purposes only and should not be construed as financial advice.
Happy Investing,
John
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