Does market breadth suggest an important low is near!?

The S&P 500 has now lost a whooping…pun intended… 4.2% of it’s value and bearishness is rampant (e.g. AAII investor sentiment was at a bottom low of 22% last week). Many market pundits will have you believe Armageddon is already upon us, but at 4.2% that seems a bit too early a call, isn’t it!? Well, let’s see what market breadth tells us. One great way to track it is to look at the Summation Index (SI of the McClellan Oscillator, called NYSI). Frequent readers know I.I. tracks it diligently and as promised yesterday, let’s take a look at what we got. Below is the NYSI since the 2009 price low. We can see that it was at record low levels (-1600) in late 2008, then at -1000 at the actual March 2009 low. Now that’s what I.I. calls “buy-baby-buy” levels! This positive divergence then set in place the current bull market (e.g. in March 2009 much less stocks were participating in the decline then in late 2008: under the hood the market was already significantly improving!) Continued below chart.

Intelligent Investing celebrates its one year anniversary with a 1 month free trial period special*. You can cancel at any time during the trail period at not cost. Please sign up here

CLICK TO ENLARGE

nysi

Since the 2009 low we can then see 4 readings centered aroundĀ -500 to -600: in the year 2010, 2011, 2012, 2014. All 4 coincided with significant market bottoms: all 10% or more corrections. But, also after each correction double digit % gains were to be had. Note that the NYSI did not even drop much lower during the 22+% correction in 2011. Now, compare that to the current NYSI of -395 and only a 4.2% decline in price, and it appears the bears are getting ahead of themselves and the market is setting up for a rally. Also note that the RSI5 on the NYSI has been oversold for months. Albeit there are no signs of a turn north, or of positive divergence like in 2009, 2010 and 2011 (but there was none in 2012 and 2014 and as such thus not necessary to signal a turn) if history is of any lesson during this 6+ year bull, then it is that NYSI is rapidly reaching levels that coincide with important bottoms and that there’s not much room left for the bears; i.e NYSI is now at it’s 4th lowest since 2009.

*After the one month free trial period, membership will automatically roll over into a monthly subscription of $24.99/month, unless canceled prior at any time and at no cost within the 30 day trial period.

One thought on “Does market breadth suggest an important low is near!?

  1. Pingback: Market breadth has turned up from extreme oversold readings, suggesting continued upside ahead | Intelligent Investing

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s