Updating Historic Study Of Breadth Momentum Thrusts
Published November 3rd, 2009 in Market Internals Tags: advance decline, breadth, historical study, market internals, Nasdaq, NYSE, S&P 500, thrust, update.Back at the beginning of August, we looked a study of momentum thrusts which showed that historically, when the 10 day ratio of NYSE advance decline was pushed to an extreme the market tended to enter a protracted rally.
There were only 10 instances in the past 4 decades, with 2 of them occurring this year. Since some time has passed, I wanted to update the table and look at where breadth stands now:
From March 23 2009, the market rallied about 12% in 3 months and almost 30% in 6 months. And forward 3 months from July 23rd, the market rose 18.6%. That’s in line with the previous returns historically (or slightly better).
When Wayne shared this historical study with me, my initial concern was that this is relying on NYSE breadth data. As I’ve stressed several times before, NYSE market internals are now skewed by the increasing number of non-operating company securities trading on the big board. While the NYSE is the most well known stock exchange around the world, increasingly ETFs, municipal bond funds and other CEFs and even bonds have started to take a larger and larger share of trading.
But, if you look closely at the Nasdaq data, it corroborates the last two momentum thrusts that are shown above. In late March and late July you can see two distinctive spikes:
So far, so good. Or more accurately, in line with historical norms. Lately though, the breadth has been horrible. We haven’t seen market internals this bad since the beginning of the year - just before the spring rally was launched.
advance decline, breadth, historical study, market internals, Nasdaq, NYSE, S&P 500, thrust, update
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Babak, a few followup thrust comments,
1. Keep in mind that we got another 10 day breadth thrust signal on Sept 16th. See “Mother of All Thrust Years”.
2. I currently have tape data going back to 1970. I have seen the ten year thrust data displayed by other analyst going back to 1950 with similar results, for example, Marty Zwieg’s “Winning on Wall Street”.
3. I am a trader that spends probably 25% of my time doing research to support trading activities. I prefer to do as much of my own research as possible as I have a number crunching fetish. But Research firms that have the resources, exclude the ETFs, preferred stocks, ADRs, etc, from their Breadth thrust calculations. I think it would be interesting to see this analysis on just the S&P 500 stocks.
4. But I have done a great deal of research in this area this year and I actually recently found that a Five day AD thrust signal (over 73.5) actually has a perfect record of forecasting S&P moves 12 months later and gave signals on Jan 06, Mar 18, and Sept 10 as well. I will post a table of these results sometime if there is interest.
5. My study has led me to the observation that although the Breadth thrust are very, very important, they are probably over rated as a thrust measure as you can draw the same conclusions from studying either Up Volume vs Down Volume or simply price change. New Highs vs New Lows is statistically significant as well. All four of these measures gave 2-3 signals in 2009. The key on all of these thrust signals is does the market have enough testosterone to generate a 5-10 day move that is something like 4 standard deviations from the normal. That is a 1 in 1000 day occurrence.
5. I have a 15 page study in progress on the subject that I plan to share at the end of the year. This paper looks at various measures of thrust, the significance of repeat signals, the significance of reverse thrust, the significance of lack of thrust or a confused market, and presents a trading model based on a combination of observations in the study.
Do good. Later my friend.
Hi Wayne,
I’m an amatuer trader that likes to do reasearch as or at least verify what others are reporting. I would be very interested what tools you are using and where you are getting data from.
Also if you have a distribution list for your work I would be interested in getting a copy of it.
All the best,
Mike
Michael,
I am a retired engineer with a lot of math/stats. I write all my own codes to do my own research, but of course get ideas from other sources.
I subscribe to Prophet for charting, data. I would assume you can go online and find one time data providers. I maintain my own databases.
If interested in these kind of studies, Put these 3 books on xmas list.
Stock Traders Almanac, Hirsh
Stock Market Logic - Fosback
Encyclopedia of Technical Indicators -Colby, Myers
Thanks, Wayne. I don’t know if you have a distribution list, but please feel free to add mikef1010@earthlink.net to it if you like.
all the best,
Babak - good stuff and thank you for the update.
Wayne - would be very interested in the table of results for your research on 5 day AD thrust signals. I imagine I’m not the only one.
If you have a distribution list, I would also like to get on it: tyler dot rm at gmail dot com
gracias,
tyler
Tyler, I am planning on publishing this as part of paper at the end of the year. I simply ask, that if you reuse, you remember where you saw it first.
I doubt that the columns will transfer in proper format. Babak may want to format for me. Like I said, Ill have more in a couple of months on the subject.
Table produced on Oct 23, 2009
HISTORY OF FIVE DAY ADT > 73.66%
63 126 252
PCT DAY DAY DAY
DATE A/(A D) %CHGSP %CHGSP %CHGSP
700602 75.81 04.73 12.02 28.73
711201 74.70 12.48 14.76 22.09
741011 77.10 01.64 20.33 23.99
750106 73.84 13.06 31.62 30.27
760106 74.05 10.67 10.70 13.01
820820 75.09 22.40 30.45 44.71
821011 77.27 09.16 15.38 27.03
840806 73.66 02.96 10.92 17.23
870108 76.46 15.54 19.53 01.47
081128 74.41 -22.31 05.41 21.36*
090106 78.61 -12.75 -05.90 16.37*
090318 74.21 14.65 34.55 36.93*
090910 76.53 04.17 04.17* 04.17*
# UP - NUM # 13-2 14-1 15-0
AVG S&P % Chg 5.09 13.60 19.16
* indicates still in progress