Wednesday, November 16, 2016

Promising Breadth Readings Last Week

The market action of the last week has been nothing short of remarkable.  From the election night futures plunge to its immediate reversal and the rally that followed, it's fair to assume that a number of traders and investors were left wrong-footed at one point or another.

Yet for those that positioned for a Trump-win rally, they've been all smiles over the last several trading days.  Today we wanted to look at recent market breadth.  By most measures the move over the last 5 days has been incredibly broad.  From the number of stocks at 52-week highs, to the % of stocks above a certain moving average, to A/D lines, to high/low ratios, all have shown solid breadth thrusts since last week. 

One other breadth reading we track on a daily basis is the number of stocks up 4%+ on the day accompanied with volume.  This unique measure provides clues into how much participation is really happening during a given price move.  Our universe covers roughly 5,000 publicly listed U.S. stocks and the reading we got on this measure last Wednesday (11/9/16) really grabbed our attention as it was the highest recording (by our count) since 2011.

This prompted us to go back into recent history and look for similar examples on this measure and see what happened in their wake.  We went back to 2010 and searched for readings where the number of stocks up 4%+ on a given day was greater than 600. *(We excluded 2009 since the readings off the financial crisis market bottom were too powerful.  We also removed clusters where multiple instances occurred within any 5 trading day span)*

  • Significant edge especially going out 3-6 months
  • Every time-period experienced a sell-off prior to thrust except the first signal in Jan 2010
  • 2010 & 2011 very different environments from 2012, 2013, and 2016
  • 2012 and 2013 are most similar to current thrust considering proximity to new highs and prior shallow pullbacks




Ryan Worch is the Managing Director of Worch Capital LLC. Worch Capital LLC is the general partner of a long/short equity strategy that operates with a directional bias and while emphasizing capital preservation at all times.

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