The Zweig Breadth Thrust is sort of an IBD follow-through day pattern, but on steroids. Steven Achelis at Metastock explained the indicator this way (emphasis added):
A "Breadth Thrust" occurs when, during a 10-day period, the Breadth Thrust indicator rises from below 40% to above 61.5%. A "Thrust" indicates that the stock market has rapidly changed from an oversold condition to one of strength, but has not yet become overbought.The Breadth Thrust is a rare but powerful bull signal that presages significant gains ahead for the stock market, should its conditions be satisfied. Day 0 was last Tuesday, August 25. Here is the chart so far and the Breadth Thrust Indicator has 10 trading days to accomplish its task of getting over 61.5%:
According to Dr. Zweig, there have only been fourteen Breadth Thrusts since 1945. The average gain following these fourteen Thrusts was 24.6% in an average time-frame of eleven months. Dr. Zweig also points out that most bull markets begin with a Breadth Thrust.
An example of the Zweig Breadth Thrust buy signal occurred at the market bottom in 2009. Then, it took seven days for the indicator to complete its task.
To be sure, not all setups turn into buy signals, but failed setups are not necessarily bearish either. Here is an example from 2011, when the SPX corrected, chopped around for a few weeks and flashed a Zweig buy signal setup. The Breadth Thrust Indicator almost achieved a buy signal in the 10 day window on day 9, but missed. It did manage to get over the 61.5% mark on day 15 - too late. Nevertheless, the market did bottom out that summer and proceeded to rise steadily for the next four years - until the recent correction.
The fear in the stock market has also made it to the cover of the New Yorker:
The market will have a difficult task of showing tremendous strength for the Zweig Breadth Thrust indicator to confirm a bullish reading. For a sense of the sheet scale of the rally, here are some numbers:
- If the rally is the same scale as it was in 2009, then an equivalent level for the SPX would be 2163, which would represent an all-time-high.
- If the rally in 2011 had hit its 61.5% target in 9 days, then the SPX would have to get to 2072.
- If the rally in 2011 had hit its 61.5% target within the 10 day window instead of 15 days that it did, then the SPX would have to get to 2130, or a test of the previous highs.