Zweig A/D and Breadth Thrust have Fired! - Roubini vs. Zweig

These days I hang around in a trading room run by Tom The Trader on PalTalk  (TTT Hedge Fund) . Tom is a student and collabortor of Dr. Martin Zweig which prompted me to study his book "Winning on Wall Street".
 
Some of Zweig's indicators are easy to create, some like the number of bullish vs. bearish ads in Barrons are more difficult.  Two indicators are presented here.  The first is the 10 day A/D line.  It is very rare for the 10 day A/D line to move above 2.00 but on March 23rd, the 10 day A/D did reach 2.13!  How rare was that?  The last time was February 1991.
 
 
Here is the picture of the last firing, along with the Dow:
 
 
Zweigh Breadth Thrust indicator
 
The second indicator I present today is the Zweigh Breadth Thrust indicator.  The Breadth Thrust Indicator is a measure of the Market Momentum.  To calculate the indicator divide the number of advancing issues by the total number of advancing and declining issues and applying a 10 day exponential moving average. A Bull Thrust is defined as any 10 day period where the indicator moves from below 40% to 61.5%.  This too is a very rare occurence and there have been fewer than 15 such indications since 1945, in fact the last time I can see the ZBT indicator firing was August 3rd in 1984, almost 25 years ago.
 
 
So what do these rare events say? According to Dr. Zweig the next 3 mos from now should show a 7.5% increase.  Here is a quote from his book regarding the 2:1 10 Day A/D ratio:
 " In other words, had you patiently waited for prices to "explode" over some two-week period, and then stepped in and bought at what seemed like "high" levels at the time, you would have made abnormally large profits in the months that followed.  Thus, strong momentum tends to persist.  Momentum also tends to be greatest at the beginnings of bull markets.....  the market must push off with a lot of firepower to get off the ground.  To put it succinctly, " if the tape can't ignite, condtions aren't right"  "
 
Roubini indicator fires in the same week.
 
This same week Roubini was on Bloombeg TV and said the following:
 

March 26 (Bloomberg) -- U.S. stocks will fall and the government will nationalize more banks as the economy contracts through the end of 2009, said Nouriel Roubini, the New York University professor who predicted last year’s economic crisis.

“The stock market is a bit ahead of the real macroeconomic and financial news,” Roubini, a professor at NYU’s Stern School of Business and the chairman of consulting firm Roubini Global Economics, said in an interview with Bloomberg Television in London today. “We’ll have some major banks going belly up that will need to be taken over.”

The global equity rebound in March that sent the Standard & Poor’s 500 Index to its best monthly advance in 17 years is a “bear-market rally” and U.S. Treasury yields will “remain relatively low” as investors flock to the safest assets, Roubini said. Treasury Secretary Timothy Geithner’s new plan to remove toxic debt from financial companies won’t be enough for insolvent banks, he said.

Roubini’s outlook contrasts with predictions this week from Templeton Asset Management Ltd.’s Mark Mobius and Traxis Partners LLC’s Barton Biggs, who said that equities are poised to rally as government efforts to revive the economy and banking system begin to work. Investors are “way too optimistic” about the prospects for a recovery in the economy and earnings, Roubini said.

 

Clearly Dr. Roubini and Dr. Zweig are at odds here.  Roubini said just two weeks ago that economist who believe in any type of recovery this year are "delusional". Personally, I hope that Dr. Zwieg's indicators prove correct, but I must prepare for the worst that Dr. Roubini presents.  I will revisit this battle in a month to see if there is any change in this tug-of-war.
 
If your are a tradestation user and interested in either of these indicators feel free to download them.
 
For a description and download of :
        Zweig Breadth Thrust
        Zweig A/D
 
I maintain this site for the benefit of my own use so that I have a cloud depository of my indicators since I trade in several different locations,  that being said all indicators are available as is. 
Comments