Author: Li Xiaoyin Source: Wind Trading Platform Is the U.S. stock market reaching a turning point? Multiple technical indicators are releasing positive signals. After a significant pullback in early April, the U.S. stock market has recently experienced a rare phenomenon of a broad-based rally, with several technical indicators triggering bullish signals simultaneously.
Notably, the market has shown an extremely rare "Zweig Breadth Thrust" (ZBT) signal. According to the Wind Trading Platform, Bank of America Merrill Lynch analyst Paul Ciana pointed out in a recent research report that since 1939, every time a ZBT signal has appeared, the S&P 500 index has risen in the following 130 and 190 trading days, with average gains of 17.1% and 19.6%, respectively. This indicator, along with the recent three-day rise of the S&P 500, the decline of the VIX fear index, and the simultaneous rise of multiple stocks on the New York Stock Exchange (NYSE), suggests that the U.S. stock market may have bottomed out and is rebounding.
ZBT Releases Bottom Signal, Market Breadth Significantly Improves ZBT is a market breadth indicator invented by legendary investor Martin Zweig, used to measure short-term market breadth and the speed of changes in market sentiment. It is calculated by the number of stocks with a rising 10-day exponential moving average (EMA) divided by the total number of traded stocks. When the proportion of rising stocks on the NYSE within 10 days rises rapidly from below 40% to over 61.5%, the signal is triggered.
In simple terms, this indicator means that the market has rapidly shifted from being extremely oversold to extremely overbought, usually marking a significant market bottom. The Bank of America report shows that as of April 24, the S&P 500 index triggered its 32nd ZBT signal since 1927, closing at 5484.77 points. Historically, after the 16 signals since 1939, the probability of the S&P 500 index rising in the following 130 and 190 trading days reached an astonishing 100%, with average gains of 17.1% and 19.6%, respectively.
The report further states that this is an extremely rare and strong bullish signal, and historical data shows that the market's performance in the next 6-12 months significantly exceeds the average level. Additionally, according to analysis by Ryan Detrick, Chief Market Strategist at Carson Group, in the last 10 trading days, there were 6 days when the proportion of rising stocks on the NYSE exceeded 70%. Although this sample is small (only 8 occurrences), the historical effect is significant—there has never been a decline in the following 6 months, with an average increase of over 14%; all increased after one year, with an average gain of over 22%.
Detrick noted that similar historical situations also occurred at market lows in 1982, 2009, and 2020: "In all these historical moments, policymakers provided significant market rescue measures, and we are likely to see this again—the Trump administration significantly reduced tariffs and the Federal Reserve is expected to cut interest rates in the second half of this year. **” Even more encouraging is that Detrick found that over 70% of NYSE stocks have risen in the past three days. Historically, after such occurrences, the market has risen 26 out of 27 times within a year, almost a hundred percent.
S&P Three-Day Rally: Confirmation of Strong Buying Wave In addition to the ZBT signal, the S&P 500 index has also risen more than 1.5% for three consecutive days, a phenomenon that is also extremely rare in history. Detrick pointed out that historically, every time such a phenomenon occurs, the stock market rises a year later, and this has happened 10 times. Bank of America reports that the S&P 500 index surged 9.5% on April 9, with an astonishing 94% of stocks rising that day.
Another strong up day occurred on April 22, with over 89% of stocks and trading volume rising over these two days. Such a strong rise occurring twice within nine days is extremely rare, having historically appeared in early 1987, March 2009, after the U.S. debt rating downgrade in August 2011, and the COVID-19 low in March 2020. Detrick noted that this strong buying wave usually indicates a future market rally.
Data shows that in the year following such occurrences, the S&P 500 index has risen in all 10 instances. Additionally, Bank of America stated that the VIX panic index broke 45 points in early April, a phenomenon that has occurred 11 times in history, with 10 of those instances resulting in a rise in the S&P 500 index 16 weeks later, with an average increase of 6.41%. The only failure occurred during the 2008 financial crisis.
Is the Current Pullback in U.S. Stocks Nearing Its End? Bank of America's report emphasizes that although multiple signals indicate that market risks may have passed, the S&P 500 index is still below the 200-day moving average (approximately 5747 points), and there is significant resistance in the 5500-5571 point range. If it falls below the 5356-5309 point gap, it may undermine the bullish pattern.
However, Bank of America further pointed out that if it can consistently break above 5500 points and fill the gap, it will form a small "cup and handle" bottom pattern, which may indicate that the S&P 500 index will retest 6000 points or even the year's high. Ideally, the index should not fall below the bullish gap of 5356-5309 points to maintain this optimistic outlook. Detrick also stated:
