Fellow Bulls, Let’s Talk About This Metric

by JC Parets  -  September 27, 2019

As the broader market continues to chop sideways, amid the usual onslaught of sky-is-falling headlines, we’ve been talking a lot this week about what’s driving the permabears. Today I want to share some insight on breadth thrust from a friend of mine, Willie Delwiche of Robert W. Baird, who is truly a jack of all trades in terms of his market analysis.

Before we get to what he has to say, I want to share with you one of his charts which should come as no surprise.

Of course bulls have been right over the past five years (and more)! But Willie points out one metric that he says points to a continuation of the bull market moving forward.

Willie is not just a CMT but also a CFA, and he holds an economics degree. So he’s always weighing the evidence from multiple angles, the approach we preach here.

Below are some of his insights regarding breadth thrust in the market, and we’ll start with his definition.

What is Breadth Thrust?

My preferred way of doing it? It’s not the only way, I like to look at advance decline ratio on a 10-day basis. It’s the 10 day sum of advancers divided by the 10-day sum of decliners… When that gets to be about 2 to 1 that is when you get the breadth thrust…

Discipline – Weigh the Evidence

We need to be really disciplined in how we approach the market we can’t just be swayed by this news item or that indicator or we’ll get swamped by it and we’ll lose context…

Specific to the breadth thrusts… this idea – and it’s been evidenced over time – that when you get a whole lot of buying pressure or a whole lot of short term participation in the market, that tends to create, if you will, some momentum in the market that you have strength that persists over time.

Momentum is Building

One of the interesting things we’ve seen this year… after not seeing breadth thrusts for a couple of years, early this year we saw breadth thrusts in January. That was a suggestion to use that maybe the worst of the decline in December was past us.

And now, more recently, as everyone’s gotten caught up in the headlines of oh wait we’re seeing this rotation we’ve lost leadership, those sorts of things.

Beneath the surface what we’ve seen is actually better participation, we’ve seen breadth thrusts reemerge.

What I’m particularly encouraged about is that overseas we’re seeing evidence that we’re going to see some overseas breath thrusts…

While the headlines say okay we’re not making new highs on an individual stock perspective, beneath the surface, it looks like more areas of the market are starting to participate. And it’s getting to the point that maybe we can have some self-reinforcing upside momentum in the market…

Let’s Get Irrational

As a reminder, I’ll be in Washington D.C. October 10-12 for this year’s edition of the Irrational Economic Summit.

It’s really an excellent event that Harry Dent and his team at Dent Research put on. And this year I’ll be speaking at it. So if you’re in the Mid-Atlantic area and want to talk technical analysis in October, the National Harbor is the place to be.