RedlionTrader

Not exactly.  But close, maybe close enough for technical work.  For those keeping score at home and who have been following our tracking of the Zweig Breadth indicator, recall that a special thrust firing (ZBT) of the indicator occurs when it moves from oversold to overbought in 10 days or less.  This occurs rarely but has preceded almost every bull market. A second firing of the indicator is common and is used to confirm the bull market recovery.  From our chart to the left you can see that on the  ZB- low of July 8th we did not reach the oversold conditions needed to meet the Zweig Thrust definition. On that date the markets began to recover and we were watching the orange trendline to see if the ZB would turn around and resume its downward momentum loss indicating more of a correction to com.  We now know it shot past that trendline without any hesitation and sits pretty close to the highs of the other breakouts in overbought territory.  Regardless of whether it is an official ZBT or not, this move has been very powerful and has added new upward momentum to the markets that have been missing over the last month.

Have I Missed the Move?

Remember it takes 10 days for the thrust indicator to fire. During that time you miss the market moves, but this indicator is a long buy and hold type indicator, an attempt to mark major market turning points.  Let us look at the price action on a weekly scale to the left. You can easily see the two thrust bars in the current recovery from the March lows.  They have many similarities.  The March thrust was preceded by 4 weeks of red bar selling.  Our new July thrust bar was also preceded by 4 red weekly candles.  The selling was not as fierce, hence no oversold on the ZB, but the consolidation was completed and the earning info started coming in strong for the second quarter.  What should scare the bears, and those holding shorts or puts is the lack of retracement into these weekly thrust candle.  The  first thrust candle only allowed a 1% pull back into its bull defended territory as shown to the right.   These thrust candles are hard to retrace. That 1% retracement in the March candle occurred on the second day of the next week.  That day, 3/17 started with a flat open with an immediate 1% sell off.  By 9:45 am the selling was complete and on that March 17th, which coincidently was a Tuesday like tomorrow, the market rocketed up closing up 3.2% for the day. This is the kind of strong bull like market we find ourselves today.

A 1% retracement into our new July Thrust candle would take us to the 934 area.   Most of us caught on the wrong side would love to get there tomorrow.  We are definitely overbought and at extremes on most of my indicators, but these thrusts have a momentum of their own.

If we get a 1% pull back I would be covering my shorts and adding to longs.  Add some more at 2% and even more at 3%.  Trail them with a 4% –8% stops.

But Have I missed the Bull Market?

This picture is a little crazy.  This is the weekly SPX  with my Zweig entries.  While we almost got a breadth thrust trigger, we definitely got a 4% Zweig/Davis buy signal.  This signal buys and sells the market when ever there is a weekly change of 4% in either direction of the Value Line index.  4% Up triggers a buy, 4% down a sell.  I track this system too and the results on the SPX are on the chart below.

The ZBT system entered the Markets officially on March 19th, 10 days after the March lows.  This entry is the thick yellow line.  To walk through the chart, you can see that I marked the opening of the March 9th candle as the basis for measuring performance.  Our entry on March 19th missed a 14.82% movement from that March low.  Since our system’s entry we are up 22.31% on the high of June 6th, so while we missed some of the market we still have captured most of it, and if we are in a second leg we will capture even more.

The 4% system has made one complete trade and is currently in a second trade.  The first trade entered on March 13th missing 11.1% of the climb.  The first trade exited on the May 15th pullback booking a 16% profit. The system was out of the market for two weeks, re-entering on the close of the week of May 29th.  Since then it has been as a high as 3.72% for a total of 19.88%.  Not quite as good as the ZBT system, but better protected.  If this system were not already in a trade it would have entered last Friday on the July 17 bar and you would be up 1%.

If this bull leg is as strong as the last one we could easily go up another 25% on the SPX from here.  That would put us in the 1090 range.  So don’t sweat that 8% you might have missed, go get that 25% before someone lets the cat out of the bag that this economy can not continue to grow on job cuts, cost slashing and government spending.

That’s my view from 10 feet up.

Happy Trading..

-RLT