Market Insights: Zweig Breadth Thrust Indicator
Milestone Wealth Management Ltd. - Apr 14, 2023
Macroeconomic and Market Developments:
- North American markets were positive this week. In Canada, the S&P/TSX Composite Index increased 1.90%. In the U.S., the Dow Jones Industrial Average rose 1.20% and the S&P 500 Index inched up 0.79%.
- The Canadian dollar improved slightly this week, closing at 74.82 cents vs 74.12 cents last Friday.
- Oil prices climbed this week. U.S. West Texas crude closed at US$82.64 vs US$80.44 last Friday, and the Western Canadian Select price closed at US$66.86 vs US$65.78 last Friday.
- The price of gold dropped this week, closing at US$2,004 vs US$2,007 last Friday.
- The big economic news in Canada this week was the interest rate announcement on Wednesday by the Bank of Canada. The central bank held its key interest rate at 4.50% for the second consecutive meeting as expected, though the bank’s governing council warned that it could increase rates again if necessary.
- Sleep Country Canada (ZZZ) announced it has agreed to acquire Casper Sleep’s Canadian assets for $20.6 million and will receive a cumulative $4.5 million marketing transition fee from Casper Sleep Inc. over the next four years, in addition to warrants which would convert into a ~1% stake in Casper Sleep Inc.
- Tilray Brands (TLRY) is acquiring rival cannabis producer Hexo (HEXO) in a deal worth approximately US$229 million. Tilray will pay US$56 million in an all-stock deal to acquire the remaining shares it doesn’t already own, after exercising the US$173 million secured convertible note it currently owns. Hexo shareholders will receive 0.4352 Tilray shares for each Hexo share that they own.
- The U.S. Consumer Price Index (CPI) rose 0.1% in March and is up 5.0% from a year ago, both numbers coming in below estimates. Excluding food and energy, the core CPI increased 0.4% and 5.6% year-over-year, both in line with expectations. Energy costs and used vehicle prices dropped, while food prices were flat.
- Brookfield Infrastructure Partners (BIP.un) announced an agreement to buy intermodal container leasing company Triton International (TRTN) in a cash and stock transaction valuing the company's common equity at approximately $4.7 billion, and reflecting a total enterprise value of approximately $13.3 billion. The offer price of $85.00/share represents a 34.9% premium to the previous day’s closing price for Triton.
- Hudbay Minerals (HBM) is acquiring Copper Mountain Mining (CMMC) for approximately $2.67/share and a $439 million equity value. Each Copper Mountain shareholder will receive 0.381 of a Hudbay common share for each Copper Mountain common share held.
- Earnings season in the U.S. has officially kicked off with three high profile banks reporting on Friday morning:
- JPMorgan (JPM) reported adjusted earnings of $4.32/share vs $3.41/share estimated on revenue of $39.34 billion vs $36.19 billion estimated.
- Citigroup (C) reported earnings of $2.19/share on revenue of $21.45 billion vs $19.99 billion expected.
- Wells Fargo (WFG) reported earnings of $1.23/share vs $1.13/share expected, on revenue of $20.73 billion vs $20.08 billion expected.
- Here is a link to a short video from Canaccord’s chief U.S. Strategist Tony Dwyer titled In Need of Breadth Mints and Antacid: DWYER VLOG
Check out this video: Grandma is great, but…
Charts of the Week:
This week, a rare bullish stock market indicator - the Zweig Breadth Thrust Indicator - flashed for the first time since 2019 and may suggest that the rally in the S&P 500 since October 2022 still has room to run. The indicator is calculated by taking a 10-day moving average of the number of advancing stocks, divided by the number of advancing stocks, plus the number of declining stocks. The calculation derives a percentage, and when it falls below 40% before surging above 60% in 10 days or less, the indicator is triggered. The main underlying factor in the indictor is stocks moving from oversold to overbought in a short time frame and it typically occurs at the beginning of a new bullish phase in the market.
As we can see in the graph below, this trigger has only flashed 14 times since 1950, and although 14 times in history is a relatively small number of occurrences to use for future predictions, the results are very impressive. The table below highlights each of these prior events and the returns for the S&P 500 in different time frames after the trigger. There is reason for excitement when we observe that after each of the prior events, the S&P 500 was always positive in the next 6-months and 12-months. 78.6% of the time the S&P 500 was positive after 3-months and 92.9% of the time the S&P 500 was positive after 1-month. To add to these impressive numbers, the 12-month average return for these 14 occurrences is 23.3%, the 6-month average return was 17.2%, the 3-month average return is 8.3%, and the 1-month average return was 5.4%. Again, we need to reiterate that past performance does not indicate future performance, and time will tell if this recent Zweig Breadth Thrust signal results in similar returns.
Source: The Chart Report
Source: Business Insider
DISCLAIMER: Investing in equities is not guaranteed, values change frequently, and past performance is not necessarily an indicator of future performance. Investors cannot invest directly in an index. Index returns do not reflect any fees, expenses, or sales charges.
Sources: CNBC.com, Globe and Mail, Financial Post, Connected Wealth, BNN Bloomberg, Tony Dwyer, Canaccord Genuity, Bespoke Investment Group, First Trust, The Chart Report, Business Insider, Carson Investment Research