I just wanted to use this blog post to give a quick update on current market conditions and what I'm looking for short term from here. Lately I've been taking a "less is more" approach in anticipation for a tradeable short term "bottom". Now keep in mind this doesn't mean the market reverses all of its losses over the past 3 weeks short term, that could take a longer period of time. Speaking in terms of a 2 - 5 day bounce type trade. Conditions are potentially probable using NYMO and NAMO indicators.
I'll walk you through a Step-by-Step process using NYMO and NAMO charts to help you become more confident around short term market weakness. To conclude the post I'll share a trade that AoT made on Friday using data based off of NYMO and NAMO charts!
What is NYMO and NAMO?
The "MO" in NYMO and NAMO stands for "McClellan Oscillator". "NY" and "NA" in this case is the index that the oscillator is attached to in relation to the chart we're examining. So simply speaking "NY" is the New York Stock Exchange and "NA" is Nasdaq in this case.
What is the "McClellan Oscillator"?
The McClellan Oscillator is recognized by technical analysts as the essential tool for measuring acceleration in the stock market. Using advance-decline statistics, it gives overbought and oversold indications, divergences, and measurements of the power of a move.
What is the benefit to attaching the McClellan Oscillator to an Index?
Over the years I have found NYMO and NAMO charts to be very reliable indictors of extreme overbought and oversold conditions. Most times it isn't adequate enough to hit slightly overbought or oversold conditions. Ideally you want to see an extreme hit before reacting in a short term manner. I go as far as tracking NYMO and NAMO each day to see where it stands in order to make judgement on the flow of the market.
I pay extra attention to these charts during extremes in the markets when they matter most.
You can find my NYMO and NAMO charts here anytime CLICK!
So what does all of this have to do with the short term health of the current market?
August 2023 has been a tough month for the market. Selling off each week now marking the 3rd week in a row. Naturally this sort of movement in a very strong environment piques my interest in the action around NYMO and NAMO.
On August 11th I started looking closely at NYMO and NAMO after persistent market weakness.
I tweeted this to Art of Trading Members here:
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I started tracking NYMO and NAMO diligently looking for an extreme condition to exploit for a short term swing trade, bounce play! On August 15th I referred back to the NYMO and NAMO charts stalking the current condition and tracking the progression into oversold territory.
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Each day the market closed red marked another day where NYMO and NAMO drifted closer to becoming oversold!
August 16th marked the first day that NYMO and NAMO dug into oversold territory. This is the spot where being patient becomes important. Waiting for an "extreme" condition in this scenario is what will truly produce the best results in terms of a strong snap back bounce.
At the close on August 17th I tweeted this:
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Now that I knew extreme levels were being met this was the time to come up with a strategy for a swing trade to exploit a potential short term bounce!
At the open on August 18th I tweeted this:
The plan was to exploit the short term oversold condition with a trade that follows the index (Nasdaq) but at the same time provides a little bit of extra "umph" on a potential snap back move! I went long $TQQQ at $35.90 with a stop loss at $34!
Here was the alert tweeted to AOT Members:
$TQQQ was the ideal candidate for this trade because its leveraged 3x with the index. If $QQQ moves 1% in theory $TQQQ should move 3%.
I'm focusing on a potential strong 1 - 2 day bounce trade with this setup. Keep in mind $NVDA reports on Wednesday after the close and that will surely give the tech sector a reaction out of that event. I want to make sure I don't overstay my welcome!
Ok this is great but what do I want to look for in the NYMO and NAMO charts going forward for a sustainable bounce moving forward?
I hope you found value in this educational walkthrough! In the future you can use this guide to apply it to your own strategy with confidence!
For additional NYMO and NAMO content click here: HOW TO USE NYMO and NAMO
Be sure to check out the Art of Trading Blog ( https://www.artoftrading.net/blog ) and all that it has to offer! I've created an extensive catalog of real world trading techniques, strategies and reviews such as this one! The free educational content can add a lot to your trading tool box and make you a more confident trader!