Just over two months ago the Zweig Breath Thrust (ZBT) generated a rare buy signal. In the interim I have enjoyed the positive feedback given the stock market’s impressive gain. After the past fourteen signals since 1950 the S&P 500 was always higher 12 months later. Some were curious about how the market traded after the prior ZBT buy signal in January 2019, so let’s look at the charts.
The S&P 500 closed at 2596 in 2019, line a, as the ZBT turned bullish. The SPX had made low two weeks earlier and rallied for 19 weeks before peaking the week of May 3rd and forming a doji, point b. The six-week decline had a classic corrective pattern that resulted in a decline of 7.6% from high to low.
The following eight-week rally took the S&P 500 to a new rally high of 3027 in July before there was another three-week correction that dropped the S&P 500 another 6.8% from the high to the low. From this 2nd low, it would be another eleven weeks before the S&P 500 surpassed the July high. One year after the ZBT buy signal the SPX closed at 3265 which was a gain of 20.5%. The SPX eventually had a high of 3393 before the Covid crash.
So what might we learn from how the stock market trades after the January 2019 ZBT signal? During both of the corrections in 2019 the weekly starc- bands were exceeded. That was an indication that the market was in a high-risk sell area and was stretched on the downside.
The weekly S&P 500 Advance/Decline line moved back above its 21-week weighted moving average (WMA) the same week as the ZBT signal. The A/D line dropped below its WMA for one week in May but did not close below it again until the end of February 2020 when it warned of the Covid crash.
The SPX has risen for fourteen weeks from the March low. The current weekly chart of the SPX shows that the high last week of 4444 was above the starc+ band at 4435. Next week the starc+ band is at 4484 with the March 2022 high at 4637. The starc+ band warning will get stronger if it is exceeded for another 2-3 weeks. The 20-week EMA is rising at 4144 was tested seven weeks ago and is good support.
The weekly S&P 500 has been in a wide range since the last week of 2021 as it has moved above and below its WMA on several occasions. This is quite unusual based on my observation of the NYSE A/D line going back to the 1970’s. This week the S&P A/D line has moved above major resistance, line c, which is a very bullish development. It indicates that the S&P is likely to move even higher after a correction.
The market-leading Invesco QQQ
QQQ
Trust (QQQ) is up 5.7% so far in June and has traded above its weekly starc+ band for three of the past four weeks. The March 2022 high of $371.83. has already been exceeded. The 20-week EMA is at $325.50 which is 11.5% below Friday’s close. QQQ is now also just over 11% below its all-time high of $408.71.
The Nasdaq 100 A/D line has closed above its long-term downtrend, line c, but is still well below its August as well as its all-time high from late 2021. The A/D line is lagging the price action which reflects the narrowness of the rally this year as it has been led by just a few stocks.
The strength of the QQQ in 2023 has confounded most of Wall Street. As I discussed at the end of March I thought the QQQ could continue to lead based on the relative performance analysis that had also warned about the bank stocks in December.
My RS analysis starts with the daily charts as it turns positive or negative first. For example, the daily RS for QQQ (see chart) peaked in August and was in a clear downtrend until January 2023 when resistance was overcome on January 17th. The current analysis still indicates that QQQ is a market leader as the RS is in a strong uptrend and is well above its rising WMA.
The positive outlook for QQQ has been consistent with the value vs growth analysis that I have been discussing for several years in Forbes.com. In the past few weeks value stocks have started to lead growth but there is no confirmation yet of a change in the trend
This could mean that a sector rotation out of growth and into value will trigger the next market correction. If the first rally phase in 2023 matches that of 2019 we could see five more weeks before a correction. Stay tuned on Twitter for key market updates and the latest charts on the growth/value analysis.
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