Market Insights: Rare Zweig Breadth Thrust Triggered

Milestone Wealth Management Ltd. - Nov 11, 2023

Market Insights

Macroeconomic and Market Developments:

North American markets were mixed this week. In Canada, the S&P/TSX Composite Index fell 0.87%, while in the U.S., the Dow Jones Industrial Average was up 0.65% and the S&P 500 Index rose 1.29%.
The Canadian dollar was down this week, closing at 72.48 cents vs 73.23 cents USD last Friday.
Oil prices were lower this week. U.S. West Texas crude closed at US$77.34 vs US$80.79 and the Western Canadian Select price closed at US$50.04 vs US$57.00 last Friday.
The price of gold also dropped this week, closing at US$1,937 vs US$1,992 last Friday.
Calgary-based Crescent Point (CPG) has entered into an arrangement to acquire Hammerhead Energy for total consideration of approximately $2.55 billion, including approximately $455 million in assumed net debt. The deal will consist of cash and common shares of CPG. According to Craig Bryksa, President and CEO, "This strategic consolidation is an integral part of our overall portfolio transformation. The acquired assets, which are situated in the volatile oil window in the Alberta Montney and adjacent to our existing lands, provide significant value with premium drilling inventory, infrastructure ownership and scalable market access.”
Office-sharing company WeWork (WE) filed for Chapter 11 bankruptcy protection on Monday. Once valued at $47 billion in a private financing round in 2019, WeWork went public in late 2020 and has suffered a spectacular collapse since then due in part to continued weak office demand in the new environment of partial work-from-home employment.
TC Energy (TRP) reported better than expected earnings this week. Earnings came in at $1.00/share vs $0.97/share expected and EBITDA of $2.63 billion vs $2.55 billion expected. Also, the company said it achieved mechanical completion of the Coastal GasLink project during the quarter, ahead of its year-end target.
Suncor Energy (SU) reported earnings of $1.52/share, better than the expected $1.40/share, with production coming in at 690.5 Mboe/d, slightly below the forecast 693.1 Mboe/d. Capital expenditures were $1.51 billion vs the predicted $1.59 billion.
Brookfield Asset Management (BAM) reported better than expected Q3 distributable earnings of $0.35/share vs $0.31/share expected, on revenue of $893 million. The company said it raised $26 billion in capital during Q3 and provided commentary noting fundraising momentum continuing to ramp up in Q4.

Weekly Diversion:

Check out this video: Leonard Cohen recites “In Flanders Fields”

Charts of the Week:

At certain times in the past, we have discussed a relatively rare bullish signal, the Zweig Breadth Thrust, and the effect this trigger has had on the market. The indicator is based on the principle that a sudden and extreme positive change of money flowing into the equity markets signals increased liquidity and momentum, potentially triggering the start of a new bull market. The indicator is calculated using the 10-day exponential moving average of the ratio of advancing issues to the sum of both advancing and declining issues on the NYSE. The Zweig Breadth Thrust requires a sudden surge in the ratio of stocks advancing to the number of stocks declining over 10 trading sessions. The specific calculation is noted at the bottom of the last table below.

As the following chart of the S&P 500 Index illustrates, there have now only been 18 occurrences where the Zweig Breadth Thrust has triggered (represented by the green dots on the blue line) since 1945, with the most recent instance on November 3^rd and the second such signal for 2023. As we can see, these signals have almost always occurred prior to significant rallies in the S&P 500.

Source: Carson Investment Group, Ned Davis Research, @RyanDetrick

The next table shows the average 1-, 3-, 6- and 12-month returns of the S&P 500 Index after each of these past times, as well as each individual year for more details. The following six and 12 months after these signals have proven to be most impressive, with the S&P 500 averaging 15.0% and 23.3% returns respectively over those time periods, with a 100% positive success rate.

Source: Carson Investment Group, Ned Davis Research, @RyanDetrick

Sources: CNBC.com, Globe and Mail, Financial Post, Bloomberg, Thomson Reuters, Refinitiv, Carson Investment Research, FactSet, @RyanDetrick, Ned Davis Research

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. Opinions and estimates are written as of the date of this report and may change without notice. Any commentaries, reports or other content are provided for your information only and are not considered investment advice. Readers should not act on this information without first consulting Milestone, their investment advisor, tax advisor, financial planner or lawyer. This communication is intended for Canadian residents only and does not constitute as an offer or solicitation by anyone in any jurisdiction in which such an offer is not allowed.