A market breadth indicator that has proven reliable to assess the stock market trend is the New York Stock Exchange Summation Index. Developed by Sherman and Marian McClellan, the McClellan Summation Index is a breadth indicator derived from the McClellan Oscillator, which is a breadth indicator based on Net Advances (advancing issues less declining issues).
Baseline Analytics has used the "400" level on the NYSI to delineate between bullish and bearish trends. As can be seen in the chart below, that level has marked trend changes rather reliably.
To enhance the value of the NYSI indicator, we have applied a 20-day simple moving average. An early trend-change signal is flashed when the NYSI crosses this moving average. The summation index is typically used for medium-term and long-term timing (whereas the McClellan Oscillator is effective for more of a short-term horizon). This is because the slower cumulative nature of the Summation Index requires more data points to support the current trend. This indicator is not perfect, but represents another tool in the technical analysis toolkit worth tracking.
What is the NYSI telling us today? the NYSI effectively flagged the market setback in June. At its most recent reading of -134, it is not yet at an extreme reading that would suggest a trend change. We will look out for the early signal moving average cross to consider a potential market trend shift to an uptrend.
- Baseline Analytics