Tuesday, March 1, 2016

McClellan Oscillator Hits 91

The McClellan Oscillator (NYMO) closed at 91 today. This is the first spike over 80 in NYMO since last October.

NYMO is a momentum indicator for breadth. When NYMO is positive and gaining, breadth momentum is increasing. This is generally good for the indices.

But breadth momentum can reach an extreme, and when it does, indices can fall in the next few days. That is the current situation.

The charts below look at all NYMO readings over 80 since 2009. Some conclusions:
Indices were generally weak in the following days. In most cases, indices traded at least 1% lower. In several cases, indices lost more than 3%. 
If the indices continued higher in the next day or two, it was by less than 1%, followed by a drop below the date of the high NYMO. 
The first spike higher in NYMO in several months (like now) didn't end the rally. The longest span before a "higher high" was one month (in September 2013).  
Let's review each case. In the charts below, SPY is shown in the upper panel and NYMO in the lower panel.

In November 2014, NYMO closed over 80. SPY fell 1% intraday the next two days, although the close on the second day was only 0.3% lower.

In October 2015, NYMO closed over 90. SPY gained 0.2% in the next two days before closing down 1% in the next two days.

In September 2013, NYMO closed over 80. SPY fell 4% over the next three weeks. It made a "higher high" within a month.

In July 2011, NYMO closed over 90. SPY was down a small 0.1% the next day and then gained 1% over the following two days. NYMO again spiked over 80, after which SPY fell more than 3.5% over the next week.

After the August 2011 bottom, NYMO closed over 80. SPY gained 0.5% the next day, then fell 4% in the next three days.

A month later, there were two NYMO spikes over 90. SPY dropped 2% and 5%, respectively, in the next 1-2 days after each one.

In both June and July 2012, SPY fell 3% in the week following a spike higher in NYMO.

After the March 2009 bottom, spikes in NYMO over 90 (there were 3 in a row) resulted in loses in SPY of 3-5% in the following days each time.

In June 2010, NYMO closed at 80. SPY was flat the next 3 days before falling 8% in the next two weeks.

In July 2010, NYMO closed over 90; SPY fell more than 2% intraday in the next two days.

SPY should be weak the next day or longer. If it instead rises further, it will likely give those gains back in the next week or so. It would be normal for SPY to trade at least 1% below today's close in the days ahead. A loss of 3% or more would not be unusual.

The upward momentum - both price and breadth - in SPY implies a "higher high" within the current rebound is likely still ahead.

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