Breadth Thrust Indicator

What is it?

Provides long term bullish timing signals.

This tool is classified as a breadth indicator; these indicators generally show the amount of participation in the movement of a stock market. It can be used to answer the question ‘how broad is the rally or sell-off?’.

The breadth thrust indicator, also known as the Zweig model, was developed by Martin Zweig. He theorised that strong buying pressure causes more buying pressure. Like a rocket ship blasting off, stocks need a big initial thrust to get off the ground and stay off the ground.

It provides a timing signal with a gap of many years or even decades, therefore it is a long-term indicator and rarely generated. Between 1965 and 2014 there were only eight Breadth Thrust signals:

December 3, 1971
October 10, 1974
January 3, 1975
August 20, 1982
August 3, 1984
March 18, 2009
October 14, 2011
October 18, 2013

The above August 1982 signal was within one week of one of the start of one of the biggest bull market in history.

How is it calculated?

Breadth Thrust Indicator = 10 EMA of Advancing Stocks / (Advancing + Declining Stocks)

The breadth thrust indicator is based on the 10-day exponential moving average of stock advances divided by the sum of stock advances plus stock declines.

  1. Calculate the number of advancing issues and divide it by the total number of issues (advancing + declining) on an exchange such as the NYSE. This will give you a percentage.
  2. Generate a 10-day exponential moving average of this percentage.

When is a Breath Thrust signal generated?

The indicator signals the start of a potential new bull market when it moves from a level of below 40% (indicating an oversold market) to above 61.5% within ten trading days. A similar move outside the ten trading day requirement does not count as a breadth thrust.

To visualise this I’ve created the chart below and highlighted in green a Breath Thrust Signal that was generated on October 8th 2015.

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On the chart above a bullish signal occurred when the Breadth Thrust indicator moved from below .40 to above .615 between September 28th and October 8th (eight trading days).