Today comes a new warning from the McClellan oscillators, NYSI and NYMO. NYMO measures the momentum in breadth and NYSI sums those values daily. A string of negative NYMO readings therefore causes NYSI to go negative. For more details, read here.
Aside from a few days, NYMO has been negative since October. As a result, Summation went negative at today's close.
Since 2000, NYSI (bottom panel) has been negative 20 separate times (yellow shading). Every time it has done so, SPX has not formed a durable bottom until NYMO (middle panel) has capitulated, meaning it closes at minus 75 or lower. The lowest close in NYMO so far has been minus 53. Today, it closed at minus 18.
Capitulation in NYMO implies one or more days of hard selling are ahead.
To be clear, the FOMC meeting could cause the indices to rally tomorrow, and this rally could carry through the holidays. But history suggests this a sellable rally until the market capitulates to the downside. In our weekend summary (here), we made a similar point regarding Trin, put/call and volatility, none of which have capitulated yet either.
This is a market that has continually surprised to the upside. Does it have one more trick in its bag?
