Led by beaten down "momentum" names, stocks rallied sharply in January with the S&P 500 adding 6%. While things looked relatively grim last month, I noted a short-term bounce in equities was possible to start the year. Adding further interest to this short-term bounce is the fact that the market generated both Breakaway Momentum and a Whaley Breadth Thrust the second week of January (uh oh, here comes the data again!) I'll spare my wife a discussion of what those are exactly, and instead just tell you both have to do with market breadth - or the number of stocks going up on a given day vs the number going down, multiple days in a row.
See all that green above? The table shows the 24 instances in the last 70+ years where a Breakaway Momentum Signal was generated. Forward returns were, as you can see, overwhelmingly positive.
And what about that Whaley Breadth Thrust? Below is the data on those...
Again, overwhelmingly positive. While no signal is infallible, the combination of Breakaway Momentum and a Whaley Breadth Thrust have certainly given stock market bulls some wind at their backs. These are signals that only occur every few years - sometimes with a decade or more coming between events. While it remains to be seen how far stock market participants can take these signals, one certainly has to appreciate what we just saw and understand why some adjustments were made to client portfolios the last few weeks.
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