Sunday, August 16, 2009

NYMO, McClellan Oscillator

Thursday we had a very bullish close which I noted, so on Friday am my bias was on the bulls side. With the thought of breaking off into new highs Friday, I was looking to buy the dips, looking for a reversal. Well the market sold off Friday AM with good volume, a lot more than I had expected. As posted friday, I was stopped out of two long trades before reversing short just to recoup the points I had lost. Now I hate losing anything, whether its $1 to $1000, I am way to competitive in nature to let 2 bad trades in a row go unnoticed.

Therefore I spent some time this weekend looking into what may have caused such a sell off. I did not find any real conclusive evidence, but I did notice a chart that I posted above that SHOULD have warned me that things were not right internally and that any kind of a breakout if any would have been short lived at least in the short term.

Here it is the NYMO, won't go into detail about what this is, I will point out some observations I have found in studying this chart. First obsever the blue horizontal line which is the zero line, a close below that usually creates a sell signal next day as noted, or at least short term market weakness. Also look at the extreme readings and how they can sometimes call short term shifts in market trends.

Last month as noted on the chart, when all looked lost for the markets breaking the head and shoulders pattern, the NYMO tipped us off by giving higher highs (bullish divergence) that price was in fact gearing up for a sharp rally. In contrast we have seen a series of lower highs forming on the NYMO (bearish divergence) which should have tipped off that some short term market weakness could be on its way.

Any good tool to keep handy, this reading along side the NYSI, or Summation Index (not shown) is extremely helpful in pointing out buying and selling activity. From studying my charts and internals closely I do expect an upday tommorrow though, but would not be surprised to see weakness for most of the week after.