NYSI Adds Fuel To The Argument For A Bounce

After today's strong action, action which will surely make bears think "this has been a corrective wave that's now finished", the market internals data continues to strengthen, adding to the argument for perhaps more upside than most are envisioning.  Please don't misunderstand, I'm still as bearish as ever but have come to appreciate the wisdom in "just forgetting what I know" and focusing on "what I see".

And what we're seeing today, augmenting the signal from the weekly NYMO which I detailed here, is more strength as it has become apparent that the NYSI (a derivative of NYMO which tends to lag by a day or three) is now issuing a buy signal as well.  I know, I know... how could a person possibly see anything bullish in today's market?  Especially someone like yours truly who has been afflicted with the disease known as "bearish bias" since the 1970s?    But it is what it is.  I'm just reporting what I'm seeing here friends and what I'm seeing is that deep inside the market, hidden from normal view, there are more stocks willing to participate in upside than there were last week.  That's not to say that the market internals "aren't weak"... they are.  But they are also at levels where market lows often occur.  And they are improving... faster with each day.

Normally my nose isn't this red.  Pressure... you know?

I don't want to speculate on what is giving the market this strength.  I don't want to know whether or not it's a short squeeze, a squeeze that could possibly get much more excruciating overnight.  I don't particularly care any more whether or not it's another deliberate 'goose job'.  A ramp job that put the market into a condition where bears will surely recognize the potential for a beautiful looking H&S pattern that 'must surely fail because it's textbook'.  I can certainly see that potential H&S as well.  It's a beauty alright, but until any H&S is actually completed with the breaking of the neckline, it's just that... pure conjecture.  Fortunately, of all the pattern 'traps' that are possible, that is one I've never been caught by for the simple reason that for some reason or other I've always been overtly aware of how often a potential H&S just seems to vanish into the waves as time progresses.

Today I'd like to show the daily chart of the Summation Index for the NYSE.  Just as a matter of explanation, NYSI is actually derived from the McClellan Oscillator.  To plagiarize the excellent description as detailed by StockCharts, the "McClellan Summation Index is a breadth indicator derived the McClellan Oscillator, which is a breadth indicator based on Net Advances (advancing issues less declining issues). The Summation Index is simply a running total of the McClellan Oscillator values. Even though it is called a Summation Index, the indicator is really an oscillator that fluctuates above/below zero. As such, signals can be derived from bullish/bearish divergences, directional movement and center line crossovers".

NYSI Daily - Click here for a full blown version that includes several indicators not visible in the version above.

To add to the evidence, let's also revisit that signal which we alluded to in Sunday's post, "NYMO Weekly Issues Buy Signal".

NYMO Weekly - Click here for a full blown version

So the evidence mounts that the market appears to be gaining some internal strength.  In no way does that imply "how much" strength though, nor how far it intends to climb.  I think it's just a simple matter of the market perhaps having fallen "too far, too fast".  And from that perspective a bounce is absolutely warranted.  Nobody should be surprised by it nor particularly angry about it.  I don't pretend to know how far it will bounce but suffice it to say that according to Elliott Wave rules, this bounce could indeed retrace the entire decline off the April 2nd high.  In no way would I suggest that's what's in the cards though.  In fact, my personal gut feel is that a retracement of perhaps 61.8% would be perfectly normal.  That would take the S&P back up to the range of 1360-65 and that's exactly what I think would make the most sense since solid resistance resides right in that area.

First though, we need to see if the markets actually do what these indicators are suggesting they will do... rise!  I think this evening's overnight action on the futures markets could end up being one of the more important sessions in this entire month.

CONCLUSION: The market is showing that it wants to rise.  In the event that's what happens, what we must then quickly get focused on would be a reversal of the signals discussed above.  Because if these indicators at some point start to warn of a pending top, and that top is going to be lower than the April high (which it surely will I would have to think), the bears are most likely going to get one of the best entry points they're likely to see in a year of trading.  There will be others, but the one I'm referring to is one we don't want to miss out on.  Stay tuned, it seems the market action just might be developing quite logically.  What a nice change of pace that would be.

Wishing you all the best...
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UPDATE: Thursday, June 14, 2012

Just for the heck of it I thought I'd throw this chart out there.  Normally when we see a chart like this our first inclination would be to give an honest assessment of what we think the next move is.  It's an especially effective exercise when we don't know what the stock, commodity or product is.  I've drawn in my own opinion about where it's heading next but please don't let that affect your own vision because I'm just making an educated guess like anyone else.  Where would you say this pattern is going next? 

Click here for a live and updating version

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