Tuesday, November 15, 2016

So now what? “breadth thrusts”


"Large, broad stock market rallies like last week’s can either kick-start a major up-move or signify an exhaustive end to a rally.

Unless massive central bank intervention perverts the process
as usual lately

...“breadth thrusts” ...describes the development in which the stock market displays an inordinate level of positive breadth over the course of several days to several weeks. 

Quotron’s version of the statistic for Nasdaq stocks, called “QCHAQ”, did something rare last week. 

The average QCHA from Monday through Friday was 1.5%. That means that stocks on the Nasdaq rose an average of more than 1.5% per day each last week. As our Chart points out, this was just the 20th time in the last 19 years that this occurred.

...the stock market has reacted in an almost binary fashion following these signals. And the delineating factor seems to merely be the prevailing cyclical market environment. 

From October 2015: "...during the cyclical bear markets in 2000-2002 and 2008-2009, these signals flamed out in short order, resulting in immediate reversals that gave back all of the breadth thrust gains, and then some.

We aren't in a bear market

We are in the biggest bubble in the history of civilization

...it was essentially all or nothing – not much middle ground. ...These types of all-or-nothing signals are dangerous – and we’ve seen quite a few of them over the past week. Get the signal wrong and not only do you not make money, but you stand to lose a great deal.

Another potential risk here is that these are not traditional breadth thrust conditions. ...Just one other occurred from within 10% of the 52-week high like our present case. Ominously, that was in March 2000 which, of course, marked the precise top of the Nasdaq bubble.

Which way will last week’s breadth thrust take us? A case certainly could be made either way. At this point, the bulls appear to warrant the benefit of the doubt. 

...if the recent signal fails to launch stocks higher, the market could very well go down in flames."