Last week, a highly regarded stock market indicator made a significant appearance, capturing the attention of technical analysts on Wall Street.
On November 3rd, for the first time in over six months, a Zweig Breadth Thrust was observed as U.S. stocks experienced a broad rally following the release of the October jobs report.
A Zweig Breadth Thrust, a relatively rare occurrence, occurs when there is a sudden surge in the ratio of advancing stocks to declining stocks over a period of ten trading sessions.
Analysts at Ned Davis explained the concept, stating, “When the majority of stocks rally together, even if a few encounter setbacks, there are enough remaining to propel the popular averages higher.”
Throughout the years, various breadth thrust indicators have been utilized by technical analysts to gain deeper insights into the performance of equity-index components. Among these indicators, the Zweig Breadth Thrust stands out with its impressive track record.
Ryan Detrick from Carson Group illustrates this point with a chart demonstrating that since World War II, a Zweig Breadth Thrust has occurred 17 times before November 3rd. In all but four instances, the S&P 500 recorded higher levels three months later.
Given the poor market breadth witnessed this year, it’s no wonder that technical analysts are particularly enthusiastic about this sudden upsurge. The market’s breadth has been notably weak, with only seven out of the top ten most valuable companies in the S&P 500 contributing to its overall growth, while the remaining 493 companies have collectively declined.
While U.S. stocks opened higher last Friday, with the S&P 500 seeing a 0.2% increase, the index remained virtually unchanged for the week. Meanwhile, the Nasdaq Composite rose by 0.4% in recent trade, and the Dow Jones Industrial Average climbed 100 points or 0.3% to reach 34,004.