One of the items mentioned by pundits as proof that a new bull market has started off the February low is the surge in market breadth. Though market breadth is important, and the surge certainly has been impressive during the early stages of the past rally, no Zweig breadth thrust was registered this time around while it was during the October 2015 rally. Although these thrust events are rare they are clearly no guarantee either as the market traded 4 months later much lower.
Therefore we don’t hang our hat on market breadth alone. We don’t hang our hat on 1 item alone at all actually. We look at many factors combined to have the weight of observable evidence point us in the most probable direction the market will take.
But as said, market breadth is important and it can give us additional clues to what to expect next. If we look at the SPX-MO (McClellan Oscillator of the S&P500) over the past year we can observe the following. Cont’d below.
The left red box shows the positive divergence between late-August and late-September 2015 (green line), a rapid surge into early-October 2015, followed by negative divergence to early-November 2015 when the mid-November correction occurred (Red line). The right red box shows the same pattern: green line, red line. The yellow boxes with accompanying blue arrows then show the same pattern in November-December 2015 and since April this year: low breadth, higher breadth, low breadth, spike and then drop (black arrow). If this fractal continues we should soon see a surge in breadth before the final plunge (orange dotted box). We dotted this box as we can of course not be certain this will happen. However, the fact that we’ve now had a 4 to 5 months’ long fractal and nothing in the charts suggests the fractal has stopped yet, the weight of the evidence suggests we should see a low in the market this coming week, likely SPX2010-20, followed by a multi-day rally, likely to SPX2080-90 , before a much bigger drop will follow.
As you notice, Intelligent Investing tracks many lines of evidence to determine the market’s next big move, Elliot Wave, S/R, TIs and TAs are several of them. Holistic objective analysis allows us to be on the right side of the market more often than not, without any preconceived notion or opinion. We use just the facts. Just like we did here! Do you want to be on the right side too? Of course! Then please join us here.