Time to Start Putting Money to Work
After three weeks of turbulent action in the stock market, the bulls finally have some good news. One of our most reliable, short-term technical indicators has turned bullish.
The Summation Index for the NYSE flipped to a buy signal earlier this week. Take a look…
This Summation Index is another technical tool for measuring market momentum.
Whenever the NYSI rallies above its 9-day EMA (the squiggly blue line on the chart), it indicates that momentum is turning higher – and that’s usually a good time to buy stocks.
Whenever the NYSI falls below its 9-day EMA, momentum is waning. That’s usually a good time to sell.
The blue dashed lines on the chart show the buy signals over the past year. Here’s how those buy signals lined up with the S&P 500…
All seven of the previous NYSI buy signals led to an immediate rally in the stock market.
The rallies last August and November were quite mild – just over 100 S&P points, and lasting only a few sessions. But the declines last May and September – coinciding with similar oversold conditions to what we’re seeing today – were more significant.
There is no way to know if the current NYSI buy signal will lead to a small rally or a large one. Heck, it might even lead to the market just marking time for a few sessions before stocks start to decline again – like they did following the buy signal in January.
So, I’m not suggesting folks throw all their money into the market and take a full 100% long trade.
I am suggesting, however, that rather than getting caught up in the wave of selling pressure, folks might want to start putting some money to work here. NYSI buy signals have a good track record.
So, until this one is negated – with the NYSI closing back below its 9-day EMA – it is possible, even likely, the decline over the past few days is a bear trap – designed to shake traders out of long positions before the market makes a move higher.
Best regards and good trading,
Jeff Clark
Editor, Market Minute
This article was originally published on this site
