Monday, July 12, 2010

Market Breadth Paints A Mixed Picture As Well

I found these two chart setups on the blog. The top one was by John Murphy and the bottom one was by Arthur Hill. These charts really do paint the picture of a B wave as we have been discussing. I have updated the charts to July 9 and added my notes.

The top chart shows just the NYSE Summation Index. The 400 level has been the dividing line between bull and bear markets for the last few years. We can see that we are now well below the 400 level indicating a bear market or correction in progress, which is no surprise. Note, however, how the NYSI topped out around 400 during the bear market rallies during 2008. We will be on the lookout if and when the NYSI approaches that level during the current rally.

The bottom chart shows the NYSE Summation Index with the NYSE McClellan Oscillator below. Arthur Hill points out that moves in the NYMO from below -50 to above +50 indicate a breadth thrust and a rally underway. In this case, we had a breadth thrust followed by a lower low in the SP500 and a higher low in the NYMO for a positive divergence. So, we have two indications for a rally.

I think these are perfect indications that a B wave (could be a 2nd wave) is in progress. We would expect the NYSI to rise at least above 0 and probably to the 400 level before turning down. If it turns down in the 0 to 400 zone, we will know that wave C down has started. If it breaks out above 400, then wave [C] or [Y] up has most likely begun. We can also look for a negative divergence in the NYMO for a clue that wave B is ending.

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