Should We Trust The Thrust (Again)?

The idea is that when the market surges (in either direction) and the market internals become extremely one-sided, a "thrust" signal occurs. And the cool part is that since the early 1970's such "thrust" signals have indicated that above-average returns in the stock market were likely for the next week, month, and six- and twelve-month periods.

Although the advent of high-speed trading, the use of ETFs, the elimination of the uptick rule, etc., have increased the occurrence of these signals, the effectiveness from a big-picture standpoint has remained impressive.

For this reason, I maintain a model that is comprised of six independent thrust indicators. The model components include a ratio of 10-day advances versus 10-day declines, 10-to-1 volume days, the percentage of stocks above/below their 10- and 50-day moving averages, a deviation-from-trend indicator, and a measure of 3-day price movement. All are as old as the hills - so there is nothing fancy happening here.

Each of the indicators provides its own signal and I view the hypothetical history of each to be quite strong. But I've found that when the majority of indicators in my combination Thrust Model are positive, it is a good idea to, in the words of Ned Davis, "trust the thrust."

The reason I decided to highlight this set of indicators here is that a fresh buy signal was given by the 10-day advances vs. declines indicator on 12-Feb. To be clear, my model has been on a buy signal since last spring. But since these indicators can be seen as an "all clear" signal for the ensuing 1-, 3-, 6-, and 12-month periods, I thought it was worth highlighting the new buy signal.

In looking at this indicator, we find that the history of the hypothetical signals is definitely worth noting. For example, one month after the signal was given, the S&P 500 would have been higher 81% of the time. Three months later, stocks were up 79% of the time. Six months: 85%. And one year later, the market was higher 98% of the time (49 out of 50), with the lone losing signal occurring in January 1987.

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The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should ...

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