A breakaway momentum signal has averaged 20.7%*

In February this year, we released In the Frame issue 22. I started ‘A message from Hue’ with information about Breakaway Momentum (http://www.walterdeemer.com/bam.htm). Excerpt below:

Essentially 'Breakaway momentum' is a crucial volume indicator that has a long history of indicating when markets have made a bottom or a new bull market has started. Created by Veteran market analyst, Walter Deemer, the definition can be found below:

“Breakaway momentum (some people call it a "breadth thrust") occurs when ten-day total advances on the NYSE are greater than 1.97 times ten-day total NYSE declines. It is a relatively uncommon phenomenon; the table at the end of this report shows the 25 times it has occurred since World War II (an average of once every 3 1/2 years). Cyclical bull markets, though, are traditionally heralded by breakaway momentum…”

In simple terms, when you have significant lopsided buy versus sell volume over a ten-day period, breakaway momentum is generated.

Historical performance for the S&P500 of a breakaway momentum indicator can be seen below:

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We experienced a signal on the 12th of January this year. Since then, the S&P 500 has risen around 11%.

Why now an update now?

The reason I am providing an update on this now in September is because:

1. After triggering ‘Breakaway momentum’, pull backs are normally very shallow (~5%)

2. Most of the reporting season is behind us (binary event risk is behind us)

3. We are entering the strongest time of the year for the Australian share market (Oct-Dec)

Firstly, during August, the S&P500 was down around 6%, which meets the first criteria of a shallow pull back.

Secondly and most importantly, last week we had a ‘Volume Thrust’. This is where we get two 80% up volume days in a row. Again, this demonstrates lopsided buying volume vs selling volume.

This ‘Volume Thrust’ of two 80% upside days in a row is from Lowry’s LLC. The reference for this can be found here: https://docs.cmtassociation.org/docs/2002DowAwardb.pdf.

Essentially, two 80% up days in a row has a long history of signaling the start of a new bull market, or the end of a bear market.

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The combination of all of the above, provide a good chunk of evidence that the next 4 months for equity markets are setting up to be bullish in our opinions.

If you would like to discuss the above information further, then please email me at hue@framefunds.com.au or call our office on 02 8668 4877.

*past performance is not a reliable indicator of future performance.