Tuesday, June 12, 2012
There are lots of reasons to be bearish right now.
Europe is on the brink of collapse... China's economy is slowing down... The United States is at risk of tumbling into a recession... And the stock market is struggling to hold on to any of its gains for the year.
But one of my favorite trading indicators says it's time to buy. Take a look...
This is a chart of the New York Stock Exchange Summation Index (NYSI).
The NYSI is an intermediate-term measure of overbought and oversold conditions. The blue circles on the chart indicate the times when the NYSI was oversold and when the MACD momentum indicator (the bottom box) extended below -200 and turned higher. This is a bullish signal that often precedes a stock market rally.
Here's how the S&P 500 behaved following each of these "buy" signals...
We've only had four buy signals over the past three years. The NYSI pegged the exact bottom of the market twice. In the other two cases, stocks drifted slightly lower for a couple more weeks before starting to rally. Six months later, though, stocks were anywhere from 18% to 50% higher.
There's no telling for sure what we'll get this time around. But based on this NYSI buy signal, it's a good idea to buy stocks into any weakness over the next few weeks.
Best regards and good trading,
In addition to the NYSE Summation Index, Jeff uses several other indicators to gauge where the market's headed next. Read up on some of his favorites here: volatility, Bollinger Bands, the MACD indicator, bullish percent indexes, and the one truly fail-proof signal, the Mother Indicator.
Last week, Jeff told Growth Stock Wire readers about a risky way to trade that can lead to incredible profits. "Now that the stock market has given up all its gains for the year," he writes, "this is the type of chart that offers the best trade setup on the long side." Get the full story here.
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