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Start to a New Bull Market?

Thanks to Chip Anderson for pointing out this chart. It is the Record High Percent Index Chart.

The Record High Percent Index is the basis for another popular index called the Breadth Thrust Indicator. First developed by Martin Zweig, the Breadth Thrust Indicator is equal to the 10-day simple moving average of the Record High Percent Index.

According to Zweig, a "Breadth Thrust" occurs when the Breadth Thrust indicator rises from below 40% to above 61.5% within 10 trading days. The signal occurs when the given market is in the process of changing from an oversold condition to one of strength, but has not yet become overbought. Zweig goes on to say that this signal typically occurs before most bull markets.

"Breadth Thrusts" are rare but significant. When the market is really ready to rally again, expect to see the red line on this chart to jump above 61.5.

You can see that we closed today just below 55. According to Zweig's analysis, we could be approaching new bull market territory. Can we decline from here? Absolutely – look at the pre-Geithner rally in the index that almost reached 45. However, this chart bears following – if a respected investor like Zweig says that a move above 61.5 signals a new bull market, then it is something to pay attention to.