When looking at the near-term direction of the market, technical analysis can play a big role in predicting these shorter trends.  One particular indicator that captures our attention is the Zweig Breadth Thrust (ZBT). Today, we will tell you what it is and why we pay attention to it.

What is the Zweig Breadth Thrust?

A ZBT occurs when a specific set of conditions are met.

  1. 10-Day Breadth: The number of advancing issues plus the number of declining issues over the past 10 trading days must be greater than 61.5% of the total issues traded on the market.
  2. 10-Day Advancing Issues: The number of advancing issues over the past 10 days must be greater than 1.35 times the number of declining issues.
  3. 10-Day New Highs: The number of stocks hitting new 52-week highs must also be greater than 2.2% of the total issues traded on the market.

While all that is complicated, it basically means that the market pivots from oversold to overbought in less than two weeks.  This rapid shift in investor sentiment has consistently been associated with a positive or bullish outlook throughout historical data.

Why Pay Attention to ZBT?

In every instance where a ZBT signal has occurred, the S&P 500 has exhibited positive performance six and twelve months later achieving a 100% success rate. On November 3rd, the ZBT was triggered for the 18th time since World War II and the second time within the current year.

This year, on March 31st, we observed the activation of this indicator. Six months later, the market recorded a 4.4% return. We highlighted this development in our April Newsletter, identifying it as a positive setup for the stock market.  Now, encountering a similar scenario once again, the results have been favorable thus far.

(Source: Carson Investment Research)

The chart provided examines the historical occurrences of ZBT signals and the ensuing returns in the S&P 500 over 1, 3, 6, and 12 months. The average return over the next 6 months is 15%, while the 12-month average is 23.3%. While relying on any single indicator as the sole basis for investment decisions is not recommended, it underscores the importance of considering technical indicators when strategically positioning portfolios.

Presented by the Financial Planning Committee of Lake Street, an SEC Registered Investment Adviser

The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. Diversification does not ensure a profit or guarantee against a loss. There is no assurance that any investment strategy will be successful. Investing involves risk and you may incur a profit or a loss.