Market breadt indicators: a comprehensive look at the NYSI, NASI, and SPXSI

Summation Indices are beautiful tools for assessing what goes on under the market’s hood. They provide an inside look! Although price is the final arbiter, we want to know if the rally is sustainable, mid-way, or peaking; hence we look at what’s called market breadth to assess this. So simple put, you want to know “how many stocks are advancing relative to those declining?”

The $NYSI (New York Stock Exchange Summation Index) is a longer term view of the McClellan Oscillator ($NYMO); it is more or less a ‘cumulative’ view. The $NASI (Nasdaq Summation Index) and SPXSI (S&P 500 Summation Index) are the same, but for the tech-sector and S&P500, respectively.  Note that these are lagging indicators, not leading, but being on the right side of the trade is more important than getting in a whee-bit late.

So what does this tell us: when the SIs turns lower, it is important to know at what level, especially compared to prior peaks. Is there negative divergence (with price/equities) or not.  If SIs go higher to a point where there is no longer negative divergence the bull run hasn’t ended yet. BUT, if it turns lower with negative divergence, a larger correction is looming.

Below are the three aforementioned summation indices (Fig.1, 2, 3). What follows is that the NASI has peaked, while the NYSI and SPXSI are about to. The NYSI has failed to make new highs since this summer, as has the NYSE itself.  The NASI has made a higher high compared to the previous peak, as has the NAZ, but the NASI has failed to make higher highs since summer of 2013, while price has gone up. So shorter term no negative divergence, longer term massive negative divergence. The same applies to the SPXSI. (click each to enlarge)

Fig 1. NYSI

NYSI 11202014

Fig. 2 NASI

NASI 11202014

Fig 3. SPXSI

SPXSI 11202014

In summary, there are signs market breadth / internals are close to turning over: more and more stocks will decline relative to those that advance. This is not directly bearish, but it simply means the market is rapdily loosing steam, and once it ain’t working under the hood so well, the ride becomes much less smooth: a correction needs to occur. This is in line with the prevailing OEW count having the market being very near completing 5 waves up off the SPX 1821.

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