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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.
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