Will narrow leadership unravel the ZBT buy signal?

Preface: Explaining our market timing models 

We maintain several market timing models, each with differing time horizons. The "Ultimate Market Timing Model" is a long-term market timing model based on the research outlined in our post, Building the ultimate market timing model. This model tends to generate only a handful of signals each decade.

The Trend Asset Allocation Model is an asset allocation model that applies trend-following principles based on the inputs of global stock and commodity prices. This model has a shorter time horizon and tends to turn over about 4-6 times a year. The performance and full details of a model portfolio based on the out-of-sample signals of the Trend Model can be found here.

 

 

My inner trader uses a trading model, which is a blend of price momentum (is the Trend Model becoming more bullish, or bearish?) and overbought/oversold extremes (don't buy if the trend is overbought, and vice versa). Subscribers receive real-time alerts of model changes, and a hypothetical trading record of the email alerts is updated weekly here. The hypothetical trading record of the trading model of the real-time alerts that began in March 2016 is shown below.

The latest signals of each model are as follows:

• Ultimate market timing model: Buy equities (Last changed from “sell” on 28-Jul-2023)*
• Trend Model signal: Bullish (Last changed from “neutral” on 28-Jul-2023)*
• Trading model: Bullish (Last changed from “neutral” on 27-Oct-2023)*

* The performance chart and model readings have been delayed by a week out of respect to our paying subscribers.

Update schedule: I generally update model readings on my site on weekends. I am also on X/Twitter at @humblestudent. Subscribers receive real-time alerts of trading model changes, and a hypothetical trading record of those email alerts is shown here.

Subscribers can access the latest signal in real time here.

 

 

 A narrow advance

The recent Zweig Breadth Thrust signal should have been unconditionally bullish. This is a rare signal that has only been generated eight times since Marty Zweig first wrote about it in 1986. The stock market has been up 6 and 12 months later after every single signal. In some cases, stocks continue to rise like a runaway freight train. In three instances, which include the buy signal generated in late March, the market rose but pulled back several months later to re-test the buy signal level.

What category will the latest buy signal fall in?
 

One short-term blemish to the latest buy signal is the problem of narrow leadership. Breadth, as measured by the ratio of S&P 500 to equal-weighted S&P 500 and net new highs, has been abysmal in the latest post-buy signal advance. Leadership has been mainly concentrated in the megacap growth stocks and small and mid-caps haven’t participated in market strength in the same way.

 
Will narrow leadership and bad breadth sink the latest ZBT buy signal?

 

The full post can be found here.