Sunday, May 8, 2016

What to Expect From the Stock Market This Summer

NYSI Summation Index Chart Technical Analysis

Two months ago I posted about the bulls leading the Market higher, which indeed did occur. However, the bulls overextended themselves, thus the Market pulled back. Once the overbought conditions have been completely alleviated the Market will attempt to make new highs. As I will explain why this scenario is likely in the paragraph below.

 The Ratio Adjusted Summation Index is a great tool to measure the strength of a bull Market. The chart above is the Ratio Adjusted Summation Index ($NYSI). The $NYSI is calculated by adding the daily values of the McClellan Oscillator. Readings above 500 convey the message that stock market is in a bull Market and will continue to make higher highs. The Market has just had an extraordinary high reading compared to the the last few years. The chart above shows the $NYSI broke well past the 500 threshold. Staying above a 500 threshold in a very convincing manner promises the Market will make higher highs. Note how previously the 500 threshold acted as resistance causing the NYSI to pull back on the chart. The failed breakout hinted at a massive pullback, which then a few months later the Market ended up declining over 20%.
Once the Market has worked off its overbought conditions, the market will continue higher. Timing of such a call is not easy to make since the $NYSI is a long term indicator. However, one may put such a time frame within 4 months.