Introduction

As readers of my occasional emails know, I am a staunch proponent of using history as a guide for projecting future market returns. This belief is rooted in the understanding that while many factors in finance evolve, human emotions—namely, greed and fear—remain constant. One could argue that it is these very emotions that ultimately steer the market’s course, whether upwards or downwards.

The Significance of Seasonality

Seasonality, the market’s tendencies at different times of the year, is a significant consideration. However, in my view, it’s not the most crucial historical metric. Instead, I prefer to examine when “X, Y, and Z” previously occurred and analyze their impact on the market three, six, and twelve months later. X, Y, and Z can represent a variety of variables. The U.S. stock market and economy constitute the most intricate machinery on Earth, with a seemingly boundless array of inputs in a state of constant flux, operating 24/7, 365 days a year.

Active Portfolio Management: Seizing Opportunities

Sales pitch: This is why we advocate for an active approach to portfolio management. By identifying a handful of opportunities annually that a more passive strategy might overlook, we enhance our chances of outperformance. Over time, this can lead to substantial gains.

The Telltale Sign: The Zweig Breadth Thrust Indicator

The conclusion of last week triggered an indicator that may very well signal one of those opportunities. It’s known as the Zweig Breadth Thrust indicator.

What Exactly is the Zweig Breadth Thrust?

While it’s fairly intricate, and I would argue, honestly, its intricacy isn’t of paramount importance. However, if you’re curious about its mechanics, please click here to learn more.

The Power of Consistency

The crucial aspect of this indicator lies in its outcomes. Much like a driver need not understand the inner workings of an engine, knowing that pressing the gas pedal accelerates and the brake decelerates suffices… and this holds true for every car you drive. There’s a reassuring consistency in this. Consistency is a quality we, as investment managers, continually seek.

The Numbers Speak: Historical Performance

So, how reliable is this Zweig Breadth Thrust? Well, it has manifested 16 times since World War II (1945). I would posit that an event occurring only 16 times in 78 years is quite rare. Out of these 16 instances, the stock market registered gains one year later… all 16 times! The same holds true six months later, with a perfect record. And the average return one year later? An impressive 23.3%!

Taking It All In: Implications for the Future

You need not be a sports enthusiast or a gambler to appreciate that a perfect score of 16 out of 16 presents excellent odds. Does this mean the market is guaranteed to ascend over the next 12 months? Of course not. There are no guarantees in the financial markets. Nonetheless, this offers a valuable directional insight, and with the right strategy, we stand poised to outperform.

What To Do Next?

Alright, what should you do with this information? Well, if we’re currently engaged together… nothing; you’re in capable hands. If we haven’t yet collaborated, do not hesitate to reach out. We’d welcome a brief conversation to explore the potential of working together.

Warmest Wishes for the Holiday Season

As the holiday season approaches, we extend our warmest wishes to you and your families!

Regards,

JC