I have been meaning to do an educational post on the NYMO, since I talk about it so frequently and of course no better time than now after the recent volatility in the market and September seasonality - being one of the most volatile months!
The NYMO is basically one of my favorite "market timing" tools if you wanna call it that!
NYMO is a market "breadth" indicator: "McClellan Oscillator"
the NY in NYMO just means you're using the 'New York Stock Exchange' as your base.
To put it in as simple a form as possible and without getting to technical, the NYMO basically takes the NET ADVANCING stocks and subtracts the NET DECLINING stocks on the NYSE for that particular day and so over time, you'll start to see it OSCILLATE from highs to lows... I won't bore you too much with the math behind this.
Here's more info on it if you want much deeper details: CLICK HERE
I post and update the NYMO chart whenever I feel it's relevant to do so... From my experience tracking the NYMO over the last few years, I noticed that once or twice a year, the NYMO will go into "dive mode"... In other words, the stock market as a whole starts to dive lower big time, bring down the NYMO with it, like what we saw in February 2018 for example during the VIX and XIV fiasco went to as low as Negative 115 (see chart above). From my experience, readings of -80 or lower suggests extreme fear, panic and hence an "over sold" market and therefore a capitulation bottom is nearing.
As some of you know, I intend on using the NYMO to help with make decisions regarding the "long term trade" ideas. It won't be "the only" thing I intend to use but it will play a big role in doing so! Keep in mind, it's not often that the NYMO gets into "extreme oversold" territory like what we saw in February. As you can see in the NYMO chart, yesterday's huge drop in the market only brought it down to about -36. Another 1-2 days like yesterday and NYMO will definitely get into "extreme oversold" territory and these conditions are often ripe for some of the strongest bounces you'll ever see! That's why, while it doesn't happen often, it usually is worth the wait especially when you're talking about more "longer term" trade ideas (such as several weeks or months holding time frame).
The NYMO is an awesome tool to add to your arsenal, that's for sure. Would I trade solely based on this indicator? of course not! But it's a good tool to use in conjunction with other tools like classic technical analysis! AOT members who were here in February 2018 probably remember well how we used the NYMO as well the use of "OUTSIDE DAYS" and "HIGHER LOWS" spotted on the SPY to move from 100% cash to get long in late March/early April time frame.
One of the more powerful signals that the NYMO chart can give is when it dips down to very low levels, for example, say it dips down to -60 area, essentially creating one of those very scary "panicky selloff" which are often times a short term BOTTOM in the NYMO and the market... then you see a big bounce in the NYMO and overall market, followed by another dip in the NYMO/market several days later, except this time, the SPY retests the FIRST LOWS but the NYMO gets down to only say -30... in this case the SPY made a DOUBLE BOTTOM but the NYMO made a "HIGHER LOW" <<---- that's as strong as buy signal as you're gonna get. If/when you see that, look out above! This is actually exactly what happened in March 2018.
This is the NYMO chart I've been using over the last 5 years to post observations on twitter:
Here's many of the tweets I've made regarding the NYMO over the last few years:
Take a look through these tweets! you'll quickly realize why I love this tool so much!
To summarize, here is what you need to know:
NYMO readings of -60 is where things get ugly in the market where we're entering "oversold"
NYMO readings of -80: don't happen often(once or twice a year) but when they do, things are so bad out there, that a market bottom is quickly looming!
NYMO readings of -100 or lower: extremely rare to see and usually means fear is running rampant and volatility is thru the roof!
I hope this helps explain why I'm such a big believer in the NYMO!
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