Market Timing Insights: Navigating NYMO and NYSI Signals
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Understanding Market Movements
The stock market ultimately trends either upward or downward, impacting all stocks and ETFs. Yet, recognizing this straightforward concept can often be surprisingly challenging.
The Trading Approach
Short-term Swing Trading: When the NYMO indicates an upward trend, it's time to purchase stocks at the next market opening. Conversely, if the NYMO signals a downturn, it's advisable to sell stocks at the next opening.
Longer-term Swing Trading: If the NYSI points to an upward movement, consider buying stocks at the next open. If the NYSI shows a downward trend, it may be prudent to either liquidate positions or initiate short sales at the following market open.
Most stocks and ETFs typically follow the general market trend. It really is that simple.
Historical Context
Historically, one of the advantages of the NYMO (the NYSE short-term breadth indicator) is its ability to provide advance warnings when the longer-term breadth indicator, the NYSI, may signal significant changes in the market, whether it be a rally or a sell-off.
Current Market Indicators:
The chart below illustrates this concept. The red circles indicate low points above previous lows and high points below prior highs on the NYMO. The colored vertical lines represent the NYSI shifts that frequently follow these movements. In the current scenario, we may be witnessing a potential upward swing, countering the recent market decline.
(CLICK ON THE CHART FOR A LARGER VIEW.)
Importance of Timing
For swing traders who have accrued substantial profits due to the NYSI's ability to time the market's current downturn, it may be wise to secure some of those gains or at least adjust stop-loss orders to protect profits in anticipation of a potential reversal.
To illustrate, let's examine three 3x-leveraged bearish ETFs that can effectively capitalize on the market's downward trend. The red bars on the chart denote a declining NYSI, while green bars indicate a rising NYSI.
- SOXS: This ETF, focused on the semiconductor sector, has experienced a 25.8% increase over the past eight trading days while the NYSI has been on a sell signal.
- TZA: This leveraged ETF for small-cap Russell stocks has risen by 15% during the same period.
- ERY: The energy sector, despite its struggles, has seen its leveraged ETF rise by 16.6% over these eight trading days.
While the NYSI may not reverse its trend immediately, it’s beneficial to remain vigilant as the NYMO currently provides a forewarning.
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