Not looking good for the bulls

Last week while the market was trading on Greece news, something was happening to the internals of the market.  A very important indicator turned bearish on this market.  What indicator is that? The McClellan Summation index(NYSI).  The McClellan summation index is sum of the McClellan Oscillator, which is based on the daily advancers and decliners in the market.  The Summation index gives a long-term direction of the market.  The key level for the summation index is 0.  John Murphy in his book The Complete Guide to Market Breadth Indicators qoutes John McClellan as saying "that when the McClellan Summation Index drops below the zero line, it is a precursor to a bear market"(p.81).  Last week the McSummation index dropped to -41. 

Above is a chart showing the times NYSI when it crosses below the zero line.  When NYSI does drop below the zero line the market went lower, in 2007 it marked the top.  When NYSI stays below the zero line and trends lower, the market follows as we see in 2008, after dropping below zero the NYSI hit -1600.  NYSI is has just breached the zero line and could come back above, but the trend has been down. 

One way to look at where NYSI will continue to head, is to look at what makes up NYSI.  The key component is the NYMO oscillator which is made up of advancers and decliners.  Looking at the NYAD and how it is trending gives you a good indicator of where NYSI will go.  NYAD is in a clear downtrend, this is confirmed first with the moving average crosses, but more importantly that the 8 day ema has capped any advances. As long as NYAD trends lower so should NYSI.

History is not looking good for the bulls, first we had the 6 weeks down and saw what that can do, now NYSI has crossed below zero.  It may be time to jump off the bull train for a little while.  For more information on NYSI click here it will take you to stockcharts.com page about NYSI.

NYSI

After looking at some charts this weekend there is one chart that said "Be careful being bearish".  This is it the NYSI.  There are a few reasons why, first is the Bollinger Band width is not at a place that is bearish, when the BB gets up to .90 it is bearish, in fact it was bullish in late November.  The second reason is the RSI on NYSI is oversold, looking back on this chart, the market as rarely declined signficantly with NYSI's RSI at this level. Also this price action looks like similar to last November an December of last year, NYSI rallied into January before the market began a move down.

NYSI

A cross above or below zero is considered bullish with this indicator.  Right now NYSI is below zero and crossed below it around a month ago and the market has declined since.  Now NYSI is having trouble getting above the zero line, which would be bullish.  Below is a chart of the NYSI and it's zero crosses.Keep an eye on this indicator.

Internals

NYSI: Notice the pattern? First NYSI is hitting resistance at 1280 and the bb width has extended it's self.  When the moving average crosses the market has corrected it's self within a few days.

A couple of post ago I mentioned the divergence and said it was weak.  Now the divergence is strong since there has been a disconnect for the last couple of days.  NYMO almost crossed zero on Friday, which would have been a sell but yesterday it bounced to stay above it.  If the market is weak the next few days NYMO has a strong chance of crossing zero.

Jobless Charts

SPX Daily Chart: Will be watching the 1131 level as resistance.

SPX Weekly:  Watching the down trendline since the start of this bear market

NYSI: This oscillator is nearing a turning point, just have to wait for the stars to align.   See the green line for the last time the stars aligned

 I am starting to think this market tops around 1135

NYSI nearing a danger zone

NYSI broke its support level around 356 a few days ago when the market was dropping.  Now NYSI has dropped below 200 and is hearing alarms by the bulls saying "Warning Warning Pull Up Pull Up".  NYSI currently is parked at 150 very close to the zero line.  A cross of this would be bearish for the market. Crosses of the zero line produce by and sell signals since this is a neutral line and moves above or below signal a change in the market.  But when it crosses the zero line downwards it is bearish.   "Tom McCleallan says that when the Mclellan summation Index drops below the zero line, it is a precursor for a bear market."(Market Breadth Indicators, Murphy). 

NYSI should be one of your favorite indicators to look at

"The McClellan Summation index generally oscillates between 0 and 2000 although it can move outside of this range during extreme or unusual market conditions. Historically, major market bottoms occur after the index falls below -1000. Readings above +1600 often indicate a major top is near. Top and bottom signals carry more significance if the index is also diverging from the associated market average. According to the McClellans, the beginning of a new bull market is signaled if the NYSE-based Summation index first moves below the -1200 level and then quickly rises above +2500." (STOCKCHARTS.COM)

Now take a look at the chart below, look where 1600+ is?  Now look at the divergence as SPX made its new high, NYSI didn't.  So 1600+ could have marked the top correctly.  Let's see if  a break of zero happens giving a signal a bear market might be near.

Who dat charts

SPX:SPX Hourly: Oversold on this time frame but still in a strong downtrendNYAD- still looks bearish, the 8 ema now looks like it will cross the 39.  NYAD was still red on Friday and did not reverse with the market. 

NYSI- Broke its prior support at this level, may trend down more.  NYSI is getting closer to zero which would be very bearish for market.  Notice how accurate the BB% moving average cross indication has been.  The green line shows the last signal it gave which was prior to this drop.

NYAD and the market

Here is a chart of NYAD, this is the advance/decline line.  The NYAD has been in a  strong uptrend since March, giving validation to the rally. Not that the market didn't need more validation it was getting enough from anyone who can ramble on about a "recovery". 

Today the NYAD was supported by the 8 day EMA this has been a key support moving average since the rally began.  NYAD has been consolidating in this area for the last couple of days.  The bulls will need another up day for this support to hold or the next support is the 19 EMA.  Notice how the distance between the 8, 19 and 39 EMAs. Past declines during this rally have started with the EMAs being wide apart. 

NYAD needs to keep advancing to maintain NYSI movement above 1000 and more importantly 0.  Here is a continuation of a NYSI chart I posted early.  Notice the pattern in this chart?

If NYSI drops because of a NYAD drop, the market could see a move back down to the 1100 level or lower.  But the bulls have been able to defend any charge by the bears.  The bears need for NYAD to break past its 8 day EMA and to break at least one key support level, which currently is the 1130 level. 

The trend is still up and if the market is going to turn or correct, NYAD will drop further. 

The Oscillator Twins

NYSI and NYMO are two key oscillators in the market. Here are charts of NYMO and NYSI

NYSI is nearing support levels watch for a bounce in NYSI or a break.  If the market cannot move up with strong advancers NYSI should be down.  Also NYSI is only 300 points away from breaking zero which is seen as long term bearish. Also on this chart look at NYAD and SPX, NYAD has held support at 200k

NYMO

One thing to notice about NYMO is the bullish divergence.  The divergence has occurred a few times since Feb.  Although the current divergence is not as strong as it was the pervious times.