The NYMO/NYSI Swing Trading Technique

The NYMO serves as a short-term market breadth indicator derived from the Advance/Decline line of the New York Stock Exchange, while the NYSI is its long-term counterpart. When analyzed together, these two indicators provide profound insights into the collective market sentiment, indicating whether the market is trending upward or downward.

When both the NYMO and NYSI are on the rise, it signals an opportune moment to invest in stocks, ETFs, or any preferred financial instruments. Conversely, a decline in these indicators suggests the need to step back from potential losses.

Market Overview from May 28, 2024

On May 28th, the NYSI signaled a downturn after a 15-day rally, prompting a sell signal for Thursday’s market opening on May 23rd. This resulted in a dramatic drop following NVIDIA's earnings report, which had initially buoyed the market overnight. This event was illustrated by a significant bearish engulfing candle in Japanese candlestick analysis.

The following Friday saw a slight oversold bounce in the market, raising questions as we approached the holiday weekend. Was the NYSI's swift decline indicative of an overreaction? Could the modest bounce suggest a buying opportunity?

Reflecting on past market behaviors, I've often observed that the day following an NYSI downturn tends to be unfavorable for bearish traders, but patience can yield insights.

Insights from Shadow Trader

Interestingly, the renowned Peter Reznicek of Shadow Trader shared his weekend update during this holiday weekend, addressing the very thoughts I had. He referred to last Thursday as a "reference day," with the bearish engulfing candle acting as an important "reference bar."

His video, approximately 20 minutes long, is a valuable resource, particularly starting at the 5:49 mark where he delves into the anticipated market movements for the upcoming week.

In this analysis, he illustrates multiple examples of "reference days" like last Thursday, noting that often there is a delay of two or more days before substantial selling pressure emerges, following the initial downturn indicated by the NYSI.

His primary takeaway is that the market may experience a slight uptick before potentially facing a bearish decline. The recent movements of the NYMO, which rose on Friday but fell today into negative NYSI territory, suggest that we might witness another limping day or two as referenced in Mr. Reznicek's observations.

The chart below highlights Thursday's SPY high and low for future reference, alongside a comparison from April 4th to reinforce his points.

As we look ahead, will the market decline tomorrow? It's uncertain, but a downward shift may be on the horizon.