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Gotta love the stock market. About a month ago, a very bearish pattern became apparent. But now a very bullish pattern that you can see in the Zweig breadth thrust indicator (ZBT for short) has come into focus.

Here’s what’s going on.

In late October, traders began talking about the Hindenberg Omen. Without getting into the details, this rare pattern has emerged ahead of sharp moves to the downside that can last for weeks and even months. On a chart, it appears as a widening span between advancers and decliners, which is normally much more narrow. (You can read more about it here.)

This began playing out at the start of November.

However, we had such a deep oversold reading on breadth that it may have started a rare bullish pattern. That’s what the Zweig breadth thrust indicator is showing us now.

The advancer/decliner line moved swiftly from bearish to bullish over the last few weeks. Now, the actual signal has not been completed, but it is very close.

What the Zweig breadth thrust indicator is telling us

The sharp swing from bearish to bullish action is telling us that buyers are coming in hot and heavy after a potential low was made.

The criteria for a ZBT signal is quite difficult to achieve, which is why it’s so rare. It has to move from a level of below 40% (indicating an oversold market) to a level above 61.5% within any 10-day period. When it happens, everyone sits up and takes notice.

Now, like many indicators the ZBT is not perfect, but it does score very high on the “success meter”. Over the last 30 years, nine ZBT signals were followed by strong uptrends.

Once it flashes a strong buy signal, new highs should be reached soon thereafter.

As an aside, we have not ever been treated to a Hindenberg Omen followed by a ZBT signal in the same month. This may be a first time occurrence, which is fascinating.

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