As discussed last week, there is a potential Zweig Breadth Thrust event in the works.  Recall that the ZBT was defined by Marty Zweig as a move in breadth from below .400 to over .615 within 10 trading days. In the past nine days, breadth (as calculated by Prophet) has risen from .39 to .604 — just shy of the trigger that is supposed to usher in a new(?) bull market.

In a July 2011 article, Tom McClellan noted that since the elimination of the uptick rule in 2007 and the advent of algorithmic trading, he wasn’t sure how valid the signal was anymore (he also discusses the different calculations folks use, and charts a few notable signal fails.)

Today’s 16-pt gain was almost entirely courtesy of the futures last night – a very common occurrence, lately.  And, thanks to the algos, the validity of intra-day price movement isn’t much better [see: How Algos are Killing Off Traders.]  So, based on the principle of garbage-in, garbage-out, I’d have to admit I’m a little leery of any signals these days.  Then there’s Robert Shiller.

In a NY Times piece this weekend, Shiller calls the US stock market “very expensive.”  The measure of valuation he favors, cyclically adjusted price-earnings or CAPE, has reached levels only exceeded in 1929, 2000 and 2007.  Yikes.

On (perhaps) unrelated note, just came across this nice little documentary on the flash crash of 2010.  It touches on HFT, algorithms, etc.  Well worth the 45 minutes, IMHO.

Money & Speed: Inside the Black Box

note: the ZBT calcs are supposed to be performed using NYSE data.  Presumably, the Prophet calculation utilizes NYSE data and the 10-day EMA suggested by Zweig, but I cannot find a source within the program to confirm this.  Caveat emptor.