Before CNBC, or any other dedicated financial TV programming, there was Louis Rukeyser’s “Wall Street Week.” If you ever watched it then you are probably already familiar with Marty Zweig who was a frequent guest. Or perhaps you’ve read his book “Winning on Wall Street.” If so, then you know that Zweig combines fundamental analysis for stock selection and technical analysis for timing. Many of his timing tools look at market breadth and one which I watch is the Zweig Breadth Thrust.
Zweig contented that if market breadth can show a dramatic positive reversal in a short period of time, it often indicated the start of a new, long-running bull trend. He measured this by looking at the 10-day exponential moving average of the ratio between NYSE advancing issues to advancing plus declining issues. He considered below 40 to be oversold and above 61.5 to be overbought. If the oscillator could get from oversold to overbought in a period of 10 days, then it was a breadth thrust.
I mention this because the oscillator finally reached oversold on Wednesday. This doesn’t occur very often. You can see from the chart below that we were briefly oversold for two periods early in the year. Once the oscillator comes back above the oversold line then we are “on the clock” to see if it can reach overbought within 10 days. If it does signal, then, according to Zweig, it is a good time to be long the market.
You can see that as I am writing this on Friday, the indicator is coming back up above the oversold line. So long as this holds at the end of the day then the countdown is on. Whether it works or not may come down to the market reaction after the election.