NYA update, how low can it go? Market breadth reaching extreme low readings

With price haven’t gone anywhere but nowhere over the past 2 months, albeit making new ATHs, it is time to take a look at market breadth for additional clues. First the regular price chart is shown with one of several possible counts to show the indecisiveness/stand off between bulls and bears. The purple trend lines show S/R since the top made in July 2014. Clearly price adheres to these very well, and are as such important and must be tracked. The yellow and white ascending trend lines are in place since the price lows made in 2011 and 2012, respectively and show that as such price continues to be in an uptrend long term. CLICK CHART TO ENLARGE nyse 6172015 With price finding support at the lower of these purple trend lines, it is time to ask the question: “how low can it go?”. Well, here at I.I. we diligently track the McClellan Oscillator (MO) and Summation Index (SI) as they give us a behind the scene, under the hood, view of the market. First up is NYMO: The McLellan Oscillator of the NYA. It simple tracks the number of advancing vs. declining issues. A negative NYMO means more stocks are “Red” then “green” and as such the market 9 out of 10 times goes down (remember it’s a market of stocks, not a stock market). Here we can see that the NYMO has been negative for most of the past month and a half, except for a short reprieve mid-May. Hence, more stocks have been declining then advancing and as such the market has declined too. Note the blue and green lines at -40 and -60. Those define buy-able and buy-zone levels, as historically such low levels have coincided with trade-able bottoms. In 2015 we’ve had two dips below -60, but the trades have been marginally profitable. nymo Because NYMO has been so negative over the past 45+ days, it’s summation index (adding each new daily NYMO reading to the previous day, etc) has caused the SI to drop lower and lower. Here the SI readings since the price low made in 2009 are shown (NYA in black). Back then the SI was -1600. Historical lows. Also note the positive divergence between the SI in October 2008 and March 2009: lower price low, but higher SI and the market took off. Similarly between August and October 2011, albeit the SI was then “only” at -500. Here at I.I. we define buy!!! bottoms when the SI drops below -500. It shows that the SI since the price low made in 2009 dropped below -500 only 3 times (August 2011, June 2012, October 2014; 20%, 10%, and 10% corrections, respectively) and below -300 two times (May 2010 and September 2013, 17% and 4% corrections, respectively).  Each of these occasions the RSI14 reached extremely oversold levels (<10), without exception.  CLICK CHART TO ENLARGE nysi Currently the SI reading is the 6th lowest (!), -210, since 2009, but price is only ~2% below its recent ATH ($11,014 vs $11,255). Hence, the SI suggests that market breadth is reaching levels that are closer to 10+% corrections with an extreme oversold reading of 5.94 on the RSI; close to the lowest readings since 2009 (!). Hence, the SI simple is running out of room to go down. As such, most of the room left, and lots of it, is up. This is something to keep in mind… However, we don’t see any signs of a reversal yet as NYMO remains negative and as such favors the bears. Neither is there any positive divergence, although that is not necessary (e.g. the 2014, 2013, 2012 lows had no + div). A decent bounce, at least, is suggested by the SI as the RSI barely can support lower readings.

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