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On the heels of a bullish TRIN reading, there were two important breadth developments that set the stage for the bulls to take control of the trend. One looks at volume on the NYSE the other looks at advancers vs. decliners. Both sent a bullish message late last week. We also highlight that last week did not produce a Zweig Breadth Thrust, but the improvement is still noteworthy. If the S&P 500 can clear resistance, the bulls can take control.

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In our Daily Note on May 18th, we highlight an interesting development in the Arms Index (TRIN). We wrote:

TRIN has moved below 0.50 twice in the past three days, signaling a much larger volume in advancing stocks relative to declining stocks. While not always a precise tool, readings below 0.50 tend to be viewed as a short-term breadth thrust that could signal a turn to the upside and put the bears on notice. This would be confirmed by the indexes breaking the resistance levels that we have highlighted above.

After this TRIN development, there were two other breadth dynamics that have captured our attention over the past week.

The first looks at a ratio of advancing volume to advancing plus declining volume on the NYSE. For three consecutive days last week (Wednesday – Friday), this ratio was greater than 80%. This was a major difference compared to March of this year, when this metric was not able to register back-to-back readings above 80%, let alone three in a row.

Perhaps more compelling is a breadth dynamic that had not played out since 2020, when the S&P 500 rebounded from the COVID lows. Here we are looking at a ratio of the five-day sum of advancers on the NYSE to the five-day sum of decliners. When the ratio moves above 2.5, that is generally a bullish signal for the S&P 500.

Finally, we once again feel compelled to point out that we DID NOT have a Zweig Breadth Thrust. The rules for the ZBT are clear, and while many analysts alter them to highlight their point, we remain purists. In our note on March 24th, we described the ZBT and highlighted that one did not take place. Last week some analysts were making the case that a ZBT has taken place. While a passing glance at the indicator may appear to show that this signal was triggered (grey box), closer inspection reveals that the bullish crossover happened on day 11, thus outside of the required 10-day window.

While the ZBT was not officially fired, the improvement in breadth is still worth noting. These thrusts set the stage for the bulls to take control of the trend IF the S&P 500 can clear resistance. The level that everyone is watching is the zone between 4,165 and 4,200.

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Disclosure: This information is prepared for general information only and should not be considered as individual investment advice nor as a solicitation to buy or offer to sell any securities. This material does not constitute any representation as to the suitability or appropriateness of any investment advisory program or security. Please visit our FULL DISCLOSURE page.