E Market Breadth Paints A Bullish Picture

Another 90% upside day followed by a Whaley Breadth Thrust to confirm an intermediate bottom and Breakaway Momentum to confirm a four-year cycle low.

I am not well versed in these two indicators so here is my look-see: Wayne Whaley published his findings in 2009 for his Advance Decline Thrust (ADT) indicator. It is simply the sum of advances for N periods (usually five) over the sum of advances plus declines over that same period. A reading above 70% is pretty good but above 75% is really good.

And now for Breakaway Momentum (BAM), from Walter's own writings:

Breakaway momentum (some people call it a "breadth thrust") occurs when ten-day total advances on the NYSE are greater than 1.97 times ten-day total NYSE declines. It is a relatively uncommon phenomenon.

As you can see, they are similar. And so is the Zweig Breadth Thrust, which looks a 10-day average of advances over advances plus declines to move from a very bearish 40% to a very bullish 61.5% in a 10-day span. Here is what that indicator looks like today:

Winner, winner, chicken dinner. It makes no sense that the market is so happy but that’s a gut reaction, not a data reaction. It’s not what we expect but there it is.

I’ll close with an excerpt from Whaley’s report which really gives us a good understanding of what all this breadth trusting is all about.

Market rallies have been appropriately compared to the launch of a rocket. In order for a rocket to have enough momentum to exit the Earth’s atmosphere, the ship must be launched with enough initial force to defy the earth’s gravity and penetrate the Earth’s atmosphere. The theory is the market has an atmosphere of boundaries as well, made up of old trading ranges, resistance lines, and the tendencies of investors to pocket short-term profits. If the market is to have a chance of overcoming its own atmospheric constraints, the initial rally must be propelled with a thrust adequate in force to send the market through the levels of resistance that thwarted previous such launches.

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Disclosure: No positions in anything covered.

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