Market Signals: Understanding the NYMO and NYSI Strategies
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Chapter 1: The Wisdom of Market Timing
Kennedy Gammage, a legendary market timer, famously advised, "Buy when the market signals you, sell when the stock indicates it." What he implied, but didn't explicitly state, is that stocks often send signals simultaneously with the market trends. In most cases, traders can confidently act based on both signals at the same time.
Gammage utilized the McClellan Oscillator ($NYMO) and the McClellan Summation Index ($NYSI) as his primary market tools. The NYMO serves as a short-term indicator of market breadth, derived from the New York Stock Exchange's Advance/Decline line, while the NYSI provides a longer-term perspective.
These two indicators combined offer a clear reflection of market psychology, indicating whether the market is trending upwards or downwards. When both the NYMO and NYSI show an upward trend, it’s an optimal moment to invest in stocks, ETFs, options, futures, or any preferred investment vehicle. Conversely, when these indicators begin to decline—especially the NYSI—it’s prudent to either step aside or consider shorting various positions.
There is little room for debate on this point.
Section 1.1: Notable Trading Day - April 15, 2024
Reflecting on a trading partner from years past, he often remarked, "When the paddy wagon arrives, they take all the girls." This saying resonated during trading on April 15, 2024. The NYSI had been on a downward trajectory for nine consecutive trading days, issuing a sell signal at the market's open on April 3, 2024. However, witnessing 43 stocks being pulled from the market felt shocking, even after such a warning.
Only seven stocks managed to remain in the green, with four of those barely above one percent. It was a significant downturn. Stocks that typically soar during an NYSI increase often plummet when the market shifts. In this recent downturn, cryptocurrency miners were particularly hard-hit—IREN down 26.8%, MARA down 22.7%, and RIOT down 19.7%—all within a span of nine trading days.
The AI sector also faced declines, with AI down 18% and SOUN down 24.5%. Additionally, stocks that previously showed promise when the NYSI was rising—such as ALPT, which fell by 20.8%, and CLSK, down 12.8%—are now experiencing severe losses.
Subsection 1.1.1: Stock Performance Analysis
The significance of these percentage drops reinforces a crucial lesson about market timing: "When the NYSI is declining, it’s best to avoid the falling knives; there’s no room for debate."
Section 1.2: Market Outlook
So, what’s next? The market appears oversold at this juncture, with 40 stocks from my Nifty50 Stock List on sell signals and 29 of them showing signs of being oversold. Typically, this situation signals a potential bounce or marks the start of a bottom in a downward trend. However, with the exception of major players like NVDA and its counterparts, many stocks seem poised for further declines.
While it's merely speculation, if NVDA and its peers face sell-offs—AAPL has already demonstrated this—there could be a potential rally, perhaps extending into the summer months.
As it stands, if you're holding short positions, it would be wise to tighten your stop losses. If you're caught in any of the numerous falling stocks, remain vigilant about the NYSI's signals for your next moves.
Chapter 2: Staying Informed
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