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US stocks signal a rare bull market for the first time in nearly 3 years, but some remain skeptical


According to data provided by its creator, a technical signal that heralded earlier turning points for the US stock market appeared for the first time in almost three years.

But some on Wall Street suspect it may not be as reliable as it once was.

The technical indicator, simply known as the breadth thrust indicator, was activated for the first time on January 12 since June 3, 2020. This indicator was created by a retired analyst. Walter Deemer in 1973 while he was working at Putnam Investments. A company representative confirmed that Deemer worked there from 1970 to 1980.

NED DAVIS . RESEARCH

According to MarketWatch interviews with several strategists, its appearance has caused quite a bit of controversy in technical analysis circles.

See more: How a ‘triple buy signal’ and other green flags can send the S&P 500 20% higher, says this money manager

Width Thrust Index

The breadth thrust indicator is based on a relatively simple formula: the primary input is the ratio of stocks of the New York Stock Exchange and other stocks that have risen over the course of 10 trading sessions relative to those that have fallen. .

Deemer said when the rate rises above 1.97, the indicator will be activated. This has rarely happened in the years since it was created, and usually it happens as soon as a new bull market begins.

As the breadth thrust indicator has grown in popularity, others have created their own modified versions, like the original, that aim to give investors a more detailed look at how individual stocks affect the performance of the broader market.

Some variations, Deemer said, focus only on the ratio of gains and losses of common stocks traded on the NYSE, while the original uses a broad gauge that includes not only common shares but preferred shares as well. , exchange-traded funds and other products that trade on exchanges, Deemer said.

‘Trust thrust’?

Some equity analysts believe the breadth push and other early-stage indicators for improving market breadth have become less useful in recent years, in part because many of the they have been activated more often.

Ed Clissold, director of US strategy at Ned Davis Research, said that some of the same metrics maintained by his company were triggered during last year’s market turmoil, raising questions about the usefulness their continued use.

“Wall Street’s cliché used to be ‘believe in the thrust’ because they’re one of the first indicators that a new bull market is happening,” Clissold said in a phone interview. go out.

“But because these thrust indicators are becoming more frequent, we now say ‘trust but verify’. And verification comes from mid-term breadth indicators.”

In particular, Clissold said he would like to see a large amount of stocks trade above the 50 and 200-day moving averages before accepting that a lasting change in the market’s mood may have arrived.

Disturbed signal

Other popular indexes based on NYSE up-and-down data seem to suggest that stocks may a little rich valueaccording to Katie Stockton, technical analyst at Fairlead Strategies.

For example, the McClellan Oscillator, another popular technical analysis tool that also relies on prior NYSE up-and-down data, has reached levels that match last year’s brief stock market highs, Stockton said. know in a note to customers on Wednesday. This indicates that the S&P 500 has become “overbought”.

US stocks fell for a second straight day on Wednesday while recording their worst daily drop of the year so far. S&P500
SPX,
-0.76%

down 1.6% to end the session at 3,928.86, according to FactSet data.

Nasdaq Composite
CALCULATOR,
-0.96%

fell 1.2% to around 10,957.01, while the Dow Jones Industrial Average
DIA,
-0.76%

fell 1.8% to 33,296.96.

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