DEFINITION of Breadth Thrust Indicator

The Breadth Thrust Indicator is technical indicator used to ascertain market momentum. It is computed by calculating the number of advancing issues on an exchange (such as the New York Stock Exchange) divided by the total number of issues (advancing + declining) on it, and generating a 10-day moving average of this percentage. The indicator signals the start of a potential new bull market, when it moves from a level of below 40% (indicating an oversold market) to a level above 61.5% within any 10-day period. This is a rarely occurring sentiment, which carries tremendous import, with market watchers.

BREAKING DOWN Breadth Thrust Indicator

The Breadth Thrust Indicator was developed by Martin Zweig—noted American stock investor, financial analyst and investment adviser. According to Zweig, the concept is based on the principle that the sudden change of money in the investment markets elevates stocks and signals increased liquidity. In other words, In other words, this indicator it is all about how quickly the NYSE advance and decline numbers go from poor to great, in a compressed time period. The Breadth Thrust Indicator is sometimes known as the Zweig Breadth Indicator—after its creator. And according to Dr. Zweig, there have only been 14 Breadth Thrusts since 1945. And the average gain following each of these thrusts was 24.6% in an average time-frame of eleven months. Zweig furthermore highlights the fact that the majority of bull markets begin with a Breadth Thrust.

Interestingly, there were zero thrusts during the 25 years span, from 1984 to 2009. That’s considered quite a dry spell, for an indicator like this. However, it should be pointed out that Zweig perfected his work on this signal many years before this particular drought period, which was arguably a point in time when the market was operating on different sets of rules of physics. Consequently, this 25 year span may be viewed as an anomaly, and doesn’t signal failure of this indicator's analytical capabilities.

In any case, whether this indicator is referred to as the Zweig Breadth Indicator or The Breadth Thrust Indicator, one thing remains certain: this tool is one of the most widely watched metrics, and is commonly referred by the financial news media, on a worldwide basis.