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(12/15/12)
In the coming weeks I'm going to show a few indicators you can
use to time significant market bottoms which have worked very well in the
past. The first indicator I will talk about is the Zweig Breadth
Thrust (ZBT) developed by Martin Zweig back in the 1980's. This
indicator uses Advance Decline data from the NYSE and is calculated by taking a
10 Day EMA of the number of Advances/(number of Advances + number of
Declines). His research showed that within "10" trading days
if the ZBT dropped below 0.40 and then rose back above 0.615 then this triggered
a long term Buy Signal. The chart below shows all of the ZBT's going
back to 1940 based on data from the Wall Street Journal.
As you can see a ZBT does not occur very often (defined by a
purple triangle) but when it does significant rallies have followed.
In fact the two most recent ZBT signals marked a significant market bottom in October of 2011 and
back in
March of 2009 (points B). Another thing that is interesting is that
there were no signals from the late 1980's through 2008. Before this time on average
roughly "1" ZBT signal occurred once every 10 years.
The table below shows all of the ZBT signal dates along with the
performance in the Dow over the next 6 and 12 months. Overall when a
ZBT has occurred the average 6 Month Return in the Dow has been 18% while the
average 12 Month Return has been 24.3%.
| ZBT
Signal |
Closing |
6 Month |
% |
12 Month |
% |
| Date |
Price |
Close |
Gain |
Close |
Gain |
| 12/8/1943 |
134.4 |
141.9 |
5.6 |
150.5 |
11.9 |
| 7/21/1950 |
207.7 |
246.8 |
18.8 |
253.7 |
22.2 |
| 7/11/1962 |
589.1 |
671.1 |
13.9 |
709.8 |
20.5 |
| 11/5/1962 |
610.5 |
718.1 |
17.6 |
749.2 |
22.7 |
| 12/3/1971 |
859.6 |
961.4 |
11.8 |
1023.9 |
19.1 |
| 10/10/1974 |
648.1 |
781.3 |
20.6 |
823.9 |
27.1 |
| 1/3/1975 |
634.5 |
871.8 |
37.4 |
858.7 |
35.3 |
| 8/20/1982 |
869.3 |
1092.8 |
25.7 |
1194.2 |
37.4 |
| 8/3/1984 |
1202.8 |
1277.7 |
6.2 |
1353.1 |
12.5 |
| 3/18/2009 |
7486.6 |
9820.2 |
31.2 |
10779.2 |
44.0 |
| 10/14/2011 |
11644.5 |
12849.6 |
10.3 |
13328.9 |
14.5 |
|
|
6 Month |
|
12 Month |
|
|
|
Avg: |
18.1 |
Avg: |
24.3 |
As you can see from the table above for those that spend the
time to track this indicator it can prove very profitable by enhancing the value
of your investments such as a 401K.
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