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Last week’s market action shows how fast momentum can do a 360-degree turn on Wall Street. Entering the week, the S&P 500 Index ETF ((SPY - Free Report) ) and the Nasdaq 100 Index ETF ((QQQ - Free Report) ) were stuck in corrections (-10% off of highs), while the Russell 2000 Index ETF ((IWM - Free Report) ) was in bear market territory (-20% off highs). However, Jerome Powell and the US Federal Reserve sparked stocks by saying they would “assess the extent of additional policy-firming.” In other words, the Fed hinted that they may take their foot off the gas as far as rat hikes are concerned. Adding to the bull parade, momentum stocks like Roku ((ROKU - Free Report) ),Palantir ((PLTR - Free Report) ), and Shopify ((SHOP - Free Report) ) each soared more than 20% after reporting better-than-expected earnings. The week resulted in robust gains across the major US indices of 5% or more. However, many of Wall Street’s most bearish analysts believe the rally is merely a bear market rally. Below are three data points that suggest that the bullish action in stocks will be sustained over the next year:
Zweig Breadth Thrust Triggers
The Zweig Breadth Thrust is a rare but powerful technical indicator used to measure stock market strength. A Zweig Breadth Thrust occurs when the number of stocks rising in the NYSE and the 10-day exponential moving average of the number of advancing stocks each exceed 61.5%. The simultaneous surge in short-term and intermediate-term market breadth suggests a significant and widespread increase in buying interest.Technical analysts track the Zweig Breadth Thrust because it is rare and reliable historically. Since World War 2, there have been 16 Whaley Breadth Thrusts – each has resulted in higher prices six months and a year later.
Image Source: Carson Investment Research, Ned Davis Research, FactSet
Net New Highs Eclipse New Lows for First Time in Months
The New Highs-New Lows (NH-NL) indicator is a technical analysis tool used by traders to gauge the overall health and momentum of the stock market. NH-NL is calculated by taking the difference between the number of stocks reaching new 52-week highs and the number of stocks hitting new 52-week lows. When net new highs outweigh net new lows, it is considered bullish for equities. After 43 straight days of net new lows (the longest streak since 2008), the NYSE minted consecutive days of net new highs last week.
Image Source: Stockcharts.com
Back-to-Back 80% Upside Days
Lowry’s up volume (UVOL) indicator measures the volume in advancers versus the volume in decliners. When the UVOL in advancers is at least 90%, or 80% or more for two sessions in a row, “panic buying” is evident. Bull markets tend to be sparked by this time of overwhelming demand.Last week, the Nasdaq, S&P 500, and Russell 2000 Index each saw back-to-back 80% UVOL days – indicating that bulls are back in control.
Image Source: TradingView
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3 Rare Signals Indicate Bulls are Back in Control
Last week’s market action shows how fast momentum can do a 360-degree turn on Wall Street. Entering the week, the S&P 500 Index ETF ((SPY - Free Report) ) and the Nasdaq 100 Index ETF ((QQQ - Free Report) ) were stuck in corrections (-10% off of highs), while the Russell 2000 Index ETF ((IWM - Free Report) ) was in bear market territory (-20% off highs). However, Jerome Powell and the US Federal Reserve sparked stocks by saying they would “assess the extent of additional policy-firming.” In other words, the Fed hinted that they may take their foot off the gas as far as rat hikes are concerned. Adding to the bull parade, momentum stocks like Roku ((ROKU - Free Report) ), Palantir ((PLTR - Free Report) ), and Shopify ((SHOP - Free Report) ) each soared more than 20% after reporting better-than-expected earnings. The week resulted in robust gains across the major US indices of 5% or more. However, many of Wall Street’s most bearish analysts believe the rally is merely a bear market rally. Below are three data points that suggest that the bullish action in stocks will be sustained over the next year:
Zweig Breadth Thrust Triggers
The Zweig Breadth Thrust is a rare but powerful technical indicator used to measure stock market strength. A Zweig Breadth Thrust occurs when the number of stocks rising in the NYSE and the 10-day exponential moving average of the number of advancing stocks each exceed 61.5%. The simultaneous surge in short-term and intermediate-term market breadth suggests a significant and widespread increase in buying interest.Technical analysts track the Zweig Breadth Thrust because it is rare and reliable historically. Since World War 2, there have been 16 Whaley Breadth Thrusts – each has resulted in higher prices six months and a year later.
Image Source: Carson Investment Research, Ned Davis Research, FactSet
Net New Highs Eclipse New Lows for First Time in Months
The New Highs-New Lows (NH-NL) indicator is a technical analysis tool used by traders to gauge the overall health and momentum of the stock market. NH-NL is calculated by taking the difference between the number of stocks reaching new 52-week highs and the number of stocks hitting new 52-week lows. When net new highs outweigh net new lows, it is considered bullish for equities. After 43 straight days of net new lows (the longest streak since 2008), the NYSE minted consecutive days of net new highs last week.
Image Source: Stockcharts.com
Back-to-Back 80% Upside Days
Lowry’s up volume (UVOL) indicator measures the volume in advancers versus the volume in decliners. When the UVOL in advancers is at least 90%, or 80% or more for two sessions in a row, “panic buying” is evident. Bull markets tend to be sparked by this time of overwhelming demand.Last week, the Nasdaq, S&P 500, and Russell 2000 Index each saw back-to-back 80% UVOL days – indicating that bulls are back in control.
Image Source: TradingView