Zweig Breadth Thrust Triggered
Is it a Trustworthy Technical Indicator for the Stock Market? - What are the Implications?
The Zweig Breadth Thrust, a notable technical indicator developed by the renowned investor Dr. Martin Zweig, serves as a powerful tool for identifying potential major turning points in the stock market, particularly marking the possible commencement of significant bull runs.
This momentum-based indicator focuses on the rapid shift in market participation. Its calculation involves examining a 10-day moving average of the ratio between the number of advancing stocks and the total number of stocks traded on a broad market exchange, such as the New York Stock Exchange. To generate this ratio, the 10-day exponential moving average (though sometimes a simple moving average is used) of advancing issues is divided by the 10-day exponential moving average of the sum of advancing and declining issues, with the result then multiplied by 100 to express it as a percentage.
This bullish signal is triggered when this calculated 10-day moving average swiftly transitions from a level below 40% to above 61.5% within a concise 10-day window. This rapid transformation signifies a dramatic change in market sentiment, moving from a state of oversold conditions and widespread pessimism to one characterized by strong and broad buying activity across a significant portion of the market.
Two weeks ago, considering the extreme volatility and market conditions recently observed, I wrote the following:
Today, you possess significantly more knowledge, perhaps gained through a challenging experience. However, this knowledge is invaluable and permanent. If you are among the persistent investors and traders who choose to continue, you will undoubtedly become more skilled with each experience. The insights I share in this publication were not learned in stable years like 2016, 2017, 2019, 2021, or 2024; they were forged during bear markets when the necessity to study more intensely became clear. It was thanks to the lessons of 2018, 2020, and 2022 that SmartReversals exists today.
Today, two weeks later, I add an additional reference:
Considering that there have been only 19 Zweig Breadth Thrust signals since World War II, experiencing the 20th just last Thursday makes you an active participant in a historically rare event. If the swift market shift feels difficult to fully grasp, remember that this occurrence marks only the 20th instance in the past 85 years.
Confusion, frustration, rejection – these are just some of the reactions I've observed when this signal appears in the market. If this is your first time encountering it, I hope you quickly adjust your market perspective and accept that after such a bearish day like last Monday, the market can roar with potentially reversal candles or gaps invalidating bearish setups. Before starting smartreversals.com, I shared the signal from November 3rd on my X account, and the some reactions were filled with denial. In the charts below, I've added what transpired after November 3rd, as well as other occurrences.