Kennedy Gammage, the late great market timer, used to say “Buy when the market tells you, sell when the stock tells you.”
He could just as easily said “buy when the market tells you AND when the stock tells you.”
That is what this story is about.
Mr. Gammage’s market tools were the McClellan Oscillator ($NYMO) and the McClellan Sumation Index ($NYSI). The NYMO is a short term market-breadth indicator based on the New York Stock Exchange Advance/Decline line, and the NYSI is its longer-term brother.
Taken together, they are the clearest indication of mass market psychology which is to say: market direction, up or down.
When the NYMO and NYSI rise, it is time to buy stocks, ETFs, calls, futures, whatever money-maker one likes best.
That is the market telling you to buy…simple as that, and do not argue.
Now throw in my nifty-50-stock list (see its own story below) as it moves, again and again, from oversold to overbought and back again.
Each time there are 40 or more of the 50 stocks on sells, it’s time to sit up and take notice since that is the number that most often signals either the bottom or the beginning of a bottom on each down swing.
Once 40 more sells have registered on the list, it is time to take note of the NYMO to get market direction to trigger the buy, or if longer-term breadth, measured by the NYSI, is rising when 40 or more sells register on the list that is to time as they say in the market to “buy the dip” in an on-going up trend.
This is what market timing and swing trading are all about and the returns can be both rapid and remarkable.