Similar Breadth Thrusts

RARE THRUST LEANS BULLISH

In last week’s CCM stock market video, we noted the slope of the S&P 500’s 200-day moving average told us to keep an open mind about better than expected outcomes in the days, weeks, and months ahead. A recent development on the breadth front also falls into that bullish-open-mind category.

A ten-day advance/decline breadth thrust was completed on January 8, 2019. Given a similar breadth thrust has only taken place twenty-five times since 1945, it is fair to say this type of thrust is very rare. It is even more rare for the thrust to take place from a weak profile with the following distinguishing characteristics:

Price was below all the generic moving averages we have been using in recent videos to illustrate basic concepts about trends.

The slopes of all the moving averages were down to flat-ish (50-day to 200-day).

The thrust occurred after a sharp vertical plunge, and thus formed a V-pattern.

breadth-thrust-2019.png

We reviewed all twenty-five previous cases and found only a handful that align well with the present-day market. The best fit appears to be the breadth thrust that occurred off the 1962 plunge low. Note in both the 2019 case above and the 1962 case below, the market was clearly in a downtrend.

Even if you take a very liberal “ish” type approach when making the comparisons, only four cases come close to checking all the boxes shown in the table below: 1962, 1971, 1982, and 2019. With liberal comparison standards, ten cases can check at least three of the four boxes: 1949, 1958, 1962 (2), 1971, 1982, 1991, 2009, 2016, and 2019.

breadth-thrusts-stock-market-SP500-10-day-a-d.png

BEST MATCH: 1962

Since 1962’s breadth thrust occurred after a plunge and from a very weak technical profile, similar to 2018-2019, it might be helpful to understand what happened after the ten-day thrust that ended on July 10, 1962. Notice like 2018-2019, the thrust began below a downward-sloping 50-day moving average, shown in blue.

breadth-thrust-1962-v-bottom-stocks.png

As noted in recent videos, often when markets try to form a bottom from a very weak technical profile, sideways consolidation and givebacks occur. The 1962 V-thrust case was no exception. Like 2019, price cleared the blue 50-day moving average, but eventually the market took a break.

breadth-thrust-1962-v-bottom-stocks-gb.png

In the 1962 case, over 61.8% of the original V-bottom move was retraced before the bulls took back control of the tape. The giveback period lasted two months.

1971 CASE

The 1971 breadth thrust created a V-type look and occurred from a weak technical profile with down to flat-ish slopes.

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Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit ...

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