NYMO and NAMO Indicators

Take a look at the McClellan Oscillators for the NYSE and the Nasdaq (NYMO and NAMO)…

(Click here to expand image)

(Click here to expand image)

These are momentum-based indicators that help determine overbought and oversold conditions. 

Readings of more than 60 indicate severely overbought conditions and often precede large declines in the markets. Readings of less than -60 express extremely oversold conditions and usually lead to strong bounces in stock prices.

Both indicators closed in the extremely overbought territory last Friday.

This is the sixth time in the past year that both the NYMO and the NAMO have been above 60 at the same time.

Now, here’s how the S&P 500 performed after the four previous times… The market fell almost immediately following all five of the previous setups. The setup in mid-July led to only a brief, short-term pullback – lasting about one week. The S&P 500 then went on to rally about 10% over the next month into a significant top in mid-August. But in the other four previous cases, the S&P 500 declined sharply for several weeks – losing, on average, nearly 600 points. It’s possible we’ll see something similar happen this time as well.