In 1970, the hedge fund manager and strategist Marty Zweig published a game-changing book called “Winning on Wall Street.” I still rely on this masterpiece for trading wisdom, especially around evaluating market performance.
Since the book is nearly 50 years old, most of the statistics are dated. However, Zweig followed patterns endlessly, so the underlying principles remain evergreen. (If you’ve never read the book, definitely buy it.)
Zweig was a regular on “Wall Street Week” with Lou Rukeyser. When he appeared on the show on Friday, October 16, 1987 – the day before that massive crash – he warned viewers that something bad was about to happen. The Dow Industrials had fallen 26% that day, and he looked visibly worried. His intuition was indeed correct, and he became known as one of the greatest market evaluators of our time (Zweig passed away in 2013 at age 70).
One of Zweig’s greatest contributions to the world of trading is the tools he created and shared. They are quite often the most accurate. Dick Arms and the McClellans have also developed valuable tools, but in my experience, Zweig’s rarely fail.
The breadth thrust indicator is one of those tools. It rarely sends a signal, but when it does, it’s time to sit up and pay attention. It flashed twice within a couple of weeks recently – on December 26 and January 4. Remember what happened on those days? Market conditions turned bullish from a steep bearish trend. The signal is not to be taken lightly! We could see markets move to much higher gains down the road.
Let’s look at January 4. What was the catalyst for the breadth thrust indicator? A strong jobs report was issued, and current Fed Chair Jerome Powell met with former Fed chairs Ben Bernanke and Janet Yellen. During the meeting, they held a Q&A, and Powell indicated the Fed may be more “patient” with new rate hikes. The Fed had been saying the opposite just a few weeks back, so what changed? I don’t know, but now it appears the committee is uber-dovish.
Marty Zweig always said, “Don’t fight the Fed.” When they make a statement, listen carefully and act appropriately. I still live by this simple trading wisdom, and so should you.