Many investors and some traders may remember the stock market performance in the last quarter of 2018. Before the 1st quarter of 2020 “the last quarter of 2018 ranks as the 11th worst quarterly performance for global stocks over the last 48 years”.
On December 10th, 2018, the bullish % according to the American Association of Individual Investors dropped to 20.9% which was the lowest reading since February 2016. Some analysts were looking for a recession in 2019 as the Dow Industrials December 2018 decline of 8.7% was the worst since 1931.
The stock market in 2018 rallied after Christmas and then on January 10th triggered a Zweig Breath Thrust (ZBT). This indicator developed by Martin Zweig is based on a 10 day EMA of the NYSE Advances / (Advances+ Declines). A signal is generated when the ZBT drops below 0.40 and then rises to above 0.615 in ten days or less.
Such a signal was generated on January 10th 2019 which was the sixth signal since 2000. Prior signals occurred in May 2004, March 2009, October 2011, October 2013, and October 2015. Only in 2015 did the NYSE Composite make a new low in early 2016 before beginning a massive rally. The October 2019 rally lasted until early 2020 and the sharp market decline.
For Zweig, the sudden change in the A/D numbers from poor to strong reflected a significant change in the flow of money to the investment markets increasing liquidity. From Investopedia “According to Zweig, there have only been 14 Breadth Thrusts since 1945. The average gain following each of these thrusts was 24.6% in an average time frame of 11 months. Zweig furthermore highlights the fact that the majority of bull markets begin with a Breadth Thrust.”
The analysis of the Advance/Decline lines plays a major role in my writing and teaching about the markets. Last week I focused on the recent new positive signals from the McClellan Summation and McClellan oscillator.
There were similar bullish signals in early January of 2019. The McClellan Summation Index crossed above its WMA on January 4, 2019. It stayed above its WMA until early March. The McClellan Oscillator turned positive two days earlier on January 4th as it moved above the zero line and its downtrend, line b.
Over the candle chart of the NYSE Composite, I have added the NYSE All Advance/Decline line in purple. It moved sharply higher in early January of 2019 and by the middle of the month had overcome several levels of resistance.
More importantly by February the NYSE All Advance/Decline as well as the NYSE Stocks Only A/D line had made new all-time highs. The charts were featured at the time on Forbes.com One Fact The Market Bears Don’t Mention.
The new highs in the S&P 500 and Nasdaq 100 A/D lines were also pointed out even though the QQQ at the time was 6.8% below its all-time high.
For a holiday-shortened week the Dow Jones Utility Average led the way up 4.1% followed by a 1.9% gain in the Dow Jones Industrial Average. Both the S&P 500 and the SPDR Gold Shares were up 1.3% last week with a modest 0.8% gain in the Nasdaq 100.
The Dow Jones Transportation Average was the weakest down 1.2% followed by a 0.7% decline in the iShares Russell 2000 (IWM). Now all the markets are higher year-to-date (YTD even IWM which is up 0.1%.
For the week on the NYSE ALL Advance/Decline numbers were negative with 1257 issues advancing and 1896 declining. All of the weekly and daily A/D lines, except the Russell 2000 A/D line, are positive. They completed their corrective patterns in late March.
The futures did trade on Friday and closed at 4141.50. It was a bit higher for the day but a bit lower for the week. For the daily futures last week’s action looks to have been just a pullback in the uptrend. The small yellow arrows identify deviation flips but not confirmed buy or sell signals like the green and red ones.
The futures analysis generated a positive signal on March 29th with an entry price of 4058. The volume analysis is positive but the StoConf is negative and is in the red zone and overbought. Jerry A’s 1st target is at 4190 with the 2nd at 4277 and Dynamic Trailing Stop (DTS) well below the market. The rising 20-day EMA in blue is at 4077
As was the case after the early 2019 Zweig Breadth Thrust signal I am looking for prices to move higher. It may take a strong move above 4200 or even 4250 in the S&P 500 to convince more of the stock market bears to change their outlook. Traders will be focused on Wednesday’s CPI report.
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