This is a guest post by Wayne Whaley, CTA:
The traditional Breadth Thrust Signal occurs over 10 days when the sum of daily advances outnumbers the sum daily declines by roughly a two to one margin. You can get some insight into thrust potential prior to the ten day period if the thrust is strong enough.
Over the last three days, my 3 Day ADT number is 78.2 (subject to minor revision). ADT = ADV/(ADV+DEC). There have been 14 instances since 1970, where the 3 day ADT has exceeded 78.0. The S&P 500 is a perfect 14-0 one year later with a gaudy 25.58% average return.
It would be convenient for the bulls to get confirmation from the 5, 10 and 20 day thrust signals over the next week, but this is a heck of a start.
In the short term, volatility contractions of greater than 21%, like the one we say on May 10th 2010, offer a reason to be cautious. At least in the short term:
ONE DAY VIX CONTRACTIONS OF GREATER THAN 21%
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