Many technicians contend that the rebound off June’s lows triggered a bear-market-killing “breadth thrust.” Several gauges we monitor to capture this phenomenon contradict that claim. None has reached a threshold that is extreme enough to qualify as a thrust.
Many technicians claim that the rallies of late March and late May generated impressive “breadth thrusts.” We’re skeptical: We’ve tested many tools that attempt to capture such a phenomenon, and found that the most reliable thrust signals aren’t ones that show up every couple of months.
We’re concerned that cyclical groups, which normally catch fire after a breadth thrust, are tracking along the bottom (or below) the previous worst-case outcomes following identical breadth-thrust signals.
There are two concerns with the latest bullish thrust signal, with one, in part, causing the other. First, the S&P 500 return preceding the MBI thrust signal was +42.8%, almost triple the average slippage of +15% associated with all prior signals.
During the first two months of the rally (and +30%) off the March lows, we noted that the usual cyclical leaders of a new bull market were underperforming on a relative basis, and there had been nothing even close to the “breadth thrust” that often accompanies an initial bull market up-leg.