There’s been much chatter the last several days about the markets finally bottoming out, much of this basis has been around a talked about indicator called ZBT, or …. Zweig Breadth Thrust Indicator. Named after Martin Zweig who was an American investor. 

Many investors are calling a bottom, partly based on this indicator that has been used to quite accurately track flows of smart money rotating back into stocks.

Taking into account the last 20 times this indicator flashed a signal the market proceeded to move higher over the duration of 6-12 months. This indicator was used quite prolifically during the 1980’s. And the original indicator does not use the Nasdaq 100 stocks as part of it’s measurements.  So considering how much these stocks make up in today’s markets, i would use this indicator with some caution and look to other technical indications along with macro environment.

ZBT is a momentum buy indicator signal that measures how fast market sentiment shifts. It measures the ratio of 10 day MA of the number of advancing stocks to the total number of stocks. A “thrust” indicates the stock market indeed has rapidly changed from an oversold market to now of of bullish strength.

There are many other valuable indicators that Wall St uses, and much of those remain bearish right now. The ZBT has a habit of forming early on after a market crash, decline or bear market. It can be overlooked as a useful indicator due to signaling so soon when panic and caution remain highly prevalent. We must also note, not all gains have produced stellar performance from ZBT. And several times the market has gone on to produce deeper losses shortly after.

What it is showing is Institutional capital is slowly re-building positions in the markets. Pensions Funds, HF’s and Institutions only come back into the markets with the intention of creating these positions over long periods of time.

Monthly Dow Jones upside risk stands at the 8EMA and has currently pulled back off the monthly highs where it’s back for a re-test of the 8EMA. WKLY TF has formed a small bearish Kumo (Ichimoku), momentum is at equilibrium. Near term SUPP 40075 (Cash). Current RES 400273 at the Tenkan-Sen.

NASDAQ

Monthly looks set to close with a dragonfly doji formation. Whilst PSAR remains bearish. Bulls failed to hold momentum at the 5 or 8 EMA.

WKLY – Bullish momentum has waned this week. PSAR still bearish. Small bearish Kumo forming. Current RES at the top base of the Kumo 19638.0.

YVWAP sees two consecutive rejection days (if we close bearish today) at the top deviation of VWAP band. PSAR is bullish. Midas VWAP is holding as near term SUPP for now at 19380.0.

S&P500 WKLY – Bullish momentum has also faded this week. Trapped between near term RES 8EMA where bulls were rejected, and near term SUPP at 5EMA. Both the inner and Med term trend lines have held as SUPP. Market is in a small LVN area. PSAR remains Bearish. And bulls are trading below the 50SMA.

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