Saturday, January 23, 2010

Bullish Omen: Breadth Surge Implies Higher Prices


When the breadth of the market becomes extremely positive over a short period of time (a technical condition referred to as a Breadth Surge or Thrust), such an surge usually has positive implications for the market over the next 3, 6, 9, and 12 months.

The most recent Breadth Thrust BUY signal was triggered on September 16, 2009. According to Ned Davis Research, since 1947 stocks have been higher one year after a Breadth Thrust BUY signal in 28 out of the 29 occurrences.

The one losing signal came in early 1987 and was ruined by the now famous “Crash of ‘87” that occurred 9 months and 6 days after the signal was given. However, it should be noted that stocks were indeed significantly higher 3, 6, and 9 months after the signal.

Of the 28 buy signals that were correct over the last 60+ years, the average gain for the S&P 500 one year after the Breadth Thrust BUY signal has been +17.5%. Yes, there were some underwhelming positive years, but 21 of the 28 years saw double digit gains averaging +22.8%.

The S&P closed on September 16th at 1068.76. This means that if history holds true, the S&P should be +17.5% higher by this September, which would put the index at 1255.79.

Since the S&P closed Tuesday, January 19, @ 1150.23, we could therefore see a further gain of roughly +9% from here.

2 comments:

  1. this is in sync with what the best tech analyst in the uSA for 5 years running says; he too expects the market to end abt 9% highr in 2010

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  2. Agreed, Arbitraging.

    Chances are that 2010 will be an UP year, but not as UP as 2009.

    A correction in the 1st quarter would be normal and constructive longer term because it will inject a healthy dose skepticism into a climate devoid of fear.

    That will set the stage for the bull market to climb the proverbial Wall Of Worry.

    In any event, we'll take it week by week. Thanks for your input.

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