Week 18 Trending Analysis

The first thing I read about after coming back from my 2-week vacation is Zweig Breadth Thrust. Actually, I first read ZBT and just glossed over it. Then I started reading more and more analysis. I had never heard of it before, so I gave the phenomenon a read.

That was Saturday morning and today is Monday and I have already forgotten what it said. The only thing I remember is that it is bullish. I do not remember anymore what I read about the exact condition. And I am not going to go back and read about it. Because I do not think it is important. I already now that the market is rising and trend indicators have turned somewhat bullish per my models.

The challenge with these type pf phenomenon is not that I do not trust it and so will not follow it. The challenge is that I can forget that it is still only probabilities.

When X happens, Y has always happened.

That does not mean when X happens the next time, Y will most definitely happen. It only means that there is a good probability that Y will happen.

As a trend follower, I only follow the market. My actions are “following” actions. If I start predicting, then those would be leading actions. For some (even some who follow my notes) that still sounds strange. It sounds like a loser mentality. From childhood we have been told to be leaders not followers. It can be tough to maintain that trend following mentality. But for me it is the only way.

Anyway, that is a book for another day. Let’s get down to current reality.

Firstly, the trending heat map looks a lot better than 2 what it was 2 weeks back.

The returns over the last 2 weeks suggest we have had a strong reversal.

Interesting to see that the IWM and MDY are leading over the last 2 weeks. That tells me that there is broad market participation in this reversal.

The RSP, IWM and MDY are all up 3 weeks in a row. While the SPY and QQQ are up 2 of the last 3 weeks. The DIA, as we can see, is lagging in the trending and certainly in the returns so far.

However, we are still mostly down for the month of April to date.

And we have not seen the VIX crush as I was expecting to see with the prices reversing.

The VIX is still over 25 which is well above the somewhat stable range of 18 - 20. The above is a daily chart of the VIX and we can see that the last time we were elevated to these levels in Aug 2024, it did some time to come down. And then it hit that 23 level several times and mostly maintained a range of 16 - 24 for a long time.

Ending the note with more positive though, let us get back to that discussion of breadth.

One thing I track is how many of the underlying stocks prices within the major 3 markets are over their 20-day moving average. There is a big improvement in that.

For SPY, 68% of the stock prices are over their 20-day moving average. It was only 30% 2 weeks back.

For QQQ, 77% of the stock prices are over their 20-day moving average. It was only 34% 2 weeks back.

For IWM, 54% of the stock prices are over their 20-day moving average. It was only 16% 2 weeks back.

Here is how I track the trending.

I am long this market for now. But still with a smaller position than normal. I will stay vigilant and not get complacent to assume that we are straightaway going to make new highs from here.

We are in earnings season and that will drive most of the narrative this week especially since we have some of the big tech companies reporting.

From Factset.com:

“At this stage of the earnings season, the S&P 500 is reporting solid results for the first quarter. Although the percentage of S&P 500 companies reporting positive earnings surprises is below recent averages, the magnitude of earnings surprises is above recent averages. As a result, the index is reporting higher earnings for the first quarter today relative to the end of last week and relative to the end of the quarter. The index is also reporting double-digit earnings growth for the second consecutive quarter.

Overall, 36% of the companies in the S&P 500 have reported actual results for Q1 2025 to date. Of these companies, 73% have reported actual EPS above estimates, which is below the 5-year average of 77% and below the 10-year average of 75%. In aggregate, companies are reporting earnings that are 10.0% above estimates, which is above the 5-year average of 8.8% and above the 10-year average of 6.9%.”

Have a great week ahead.