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

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