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Every once in a while, the market has such strong momentum that the 10 day NYSE Advance Decline goes above 2:1. The historical data below is from Wayne, a regular reader and experienced CTA. As you can see, the latest one was just last week on July 27th 2009:
“I have advance/decline data going back to 1970. Note the only failure occurred in 1987, a year in which the S&P was up sharply for 3 and 6 mts before crashing 10 months later under the pressure of rising interest rates.
In his book Winning on Wall Street, Marty Zweig has an additional four listed from 1950-1969, that were 3-1 three months later and 4-0 six months later.
Also note that this is the second thrust this year. The two other calendar years that I have with two occurring are 1975 and 1982 (in bold) and both were very positive.
The concept is that market rallies are similar to rocket launches. Without the proper momentum they will not have the strength to leave the earths atmosphere. One way to measure the strength is a measure of broad participation via the A/D line over say a 10 day period. If the A/D over a 10 day period can achieve a level close of 2 (actually about 1.91 is the optimum level), then history suggest that there the market has the strength to sustain a meaningful rally.
These type of strong thrust moves have left many traders at the station. This most recent one is no different. There are very few who actually believe that this rally is the real deal. As well, this dovetails with the Lowry 90-90 days that show similar extreme thrust moves. You can see the extremely strong breadth in the NYSE and Nasdaq Summation Indexes as well:
Also, with today’s close we had 91% of the S&P 500 index components trading above their 200 day simple moving average. That is the highest for at least 5 years! The last time this indicator was this high was in late February 2007 - when the Standard & Poor’s 500 was trading at 1460.
Based on these sort of indications, my hunch is that we are going to continue higher in the medium to longer term but with a short term pause or correction. The flag pattern comparison was right on the money, if I do say so myself
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