January 19

Evaluating Market Momentum: A Study of Breadth Thrust and Other Measures in the S&P 500 by Wayne Whaley

Last Updated on 19 January, 2023 by Samuelsson

In this article, we will be exploring the use of market momentum indicators to predict intermediate moves in the S&P 500. Specifically, we will be focusing on Breadth Thrust as a key indicator, and evaluating its utility in comparison to other measures such as Up vs. Down Volume, Price Change, Trin, and the number of Issues making new 12 Month Highs and 12 Month Lows. Additionally, we will be studying the statistical significance of Reverse Thrust, commonly referred to as capitulation, and the significance of lack of Thrust signal sightings over extended periods. The ultimate goal of this research is to combine all of these findings into an Intermediate time frame trading model that can be used to make more informed investment decisions. We will be providing a summary of the most interesting and statistically significant results, and presenting a tape trading model that reflects these findings.

A Study of Various Market Thrust Measures

This research from Wayne Whaley is focused on using measures of market momentum, specifically Breadth Thrust, to predict intermediate (6-12 month) moves in the S&P 500. The researcher studies the traditional measure of Breadth, the Cumulative Advance Decline Line on the NYSE, as well as other measures such as Up vs. Down Volume, Price Change, Trin, Number of Issues making New 12 Month Highs and 12 Month Lows. The focus is on identifying those measures that are highly reliable in signaling intermediate moves in the S&P 500. The researcher also examines the statistical significance of Reverse Thrust, commonly referred to as capitulation, and the significance of lack of Thrust signal sightings over extended periods. The research ultimately aims to combine all of these findings into an Intermediate time frame trading model.

In summary, the research focuses on evaluating various measures of market momentum in order to identify signals that indicate intermediate (6-12 month) moves in the S&P 500. The main measure studied is Breadth Thrust, which is calculated as the percent of daily Advances over a certain period (in this case, 5 days) as a percentage of both Advances and Declines during that same period. The research finds that this measure is highly reliable in signaling intermediate moves in the market. Additionally, the research studies other measures of market momentum such as Up vs. Down Volume, Price Change, Trin, and Number of Issues making New 12 Month Highs and Lows. The findings are then combined into an Intermediate time frame trading model.

Background

This research can be summarized in the five stages below:

1. Revisit the significance of Breadth (Adv/Dec) Thrust in launching major market moves.
2. Evaluate the utility of evaluating market momentum via measures other than Breadth.
3. Study the statistical significance of Reverse Thrust, commonly referred to as capitulation.
4. Study the significance of lack of Thrust signal sightings over extended periods.
5. Combine all the above research into an Intermediate time frame trading model .

You can read about the research and findings here.

Thrust Research Conclusions 

By Author:

1. Thrust signals are a very important tool for gauging the potential for sizable intermediate
market moves.
2. The well documented NYSE 10 day Advance/Decline Thrust indicator is still very
reliable when triggered, but did not give any signals from 1994 to 2008.
3. Other tape measures, besides breadth, can also yield additional insight into Market Thrust
potential. In particular, Up Volume vs Down Volume and simple Price movement.
4. All three measures (Breadth, Up vs Down Volume and Price) had a strong positive
correlation with forward intermediate market moves when observed at the 99.8%
occurrence level.
5. Extreme occurrences of Reverse Thrust (capitulation) are very constructive for the
market as well, and also had a strong positive correlation with forward intermediate
market moves when observed at the 0.1% level.
6. The longer the market goes without a sign of thrust, the more vulnerable the market is to
a sharp move to the downside .
7. An unusual number of issues making both New 12 Month Highs and Lows can yield
some additional insight into the market’s lack of ability to produce a future thrust.
8. It is expected this trading strategy would spend 20-30% of time in a cash position, thus
reducing the risk or Beta factor of being fully invested in equities at all times.

Who is Wayne Whaley?

G. Wayne Whaley is a Commodity Trading Advisor (CTA) with over 25 years of experience in the field of investment analysis and trading. Wayne specializes in the implementation of engineering principles to the development of pattern recognition techniques and backtesting of market strategies. He is the author of the weekly Wayne Whaley’s Market Commentary newsletter, which provides commodity trend insight from an engineering perspective.

Wayne began his career in 1993 when he joined Witter & Lester, a Huntsville, Al.-based CTA, with the intention of turning his hobby into a career. He became a partner of the firm in 1999. Over the last 15 years, Mr. Whaley has been developing a 7000 line computer code to aid him in his market decisions. His model relies on the ability to take an electronic snapshot each day of an indicator’s characteristics, identifying all similar instances in the past and summarizing the statistical results for the user.

Wayne holds a B.S. degree in Mathematics with a minor in Computer Science from Jacksonville State University. He received a Masters Degree in Operations Research from the Georgia Institute of Technology in 1981, where he gained his first exposure to the mathematical modeling of probabilistic models. His education also focused on Optimization Theory, Time Series Analysis, Simulation Techniques and Game Theory.

In 2010, Wayne was the recipient of the prestigious Charles Dow Award from the CMT Association for his research paper, Planes, Trains, & Automobiles, A Study Of Various Momentum Thrust Measures.


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